Managing paper loses and W2 income with husband REPS & both materially participate

[Emilio Marconell]

Hi all, 

I have tried to clarify this issue for several weeks but not sure if I get it right... My wife is a high earner (w2) and I work 100% in growing our RE portfolio and qualify as real estate professional. We started investing (BRRR) in Dec 2024 and have an LLC (50%-50%) with 8 single family homes LTR. We both materially participate in our rentals (>500h between both of us). We plan to invest in about 15-20 properties per year.

We plan to do cost segregation and bonus depreciation in all our LTR and offset the paper loss of the properties (passive) with my wife W2 (active).

I initially thought we could only depreciate 50% of my wife's W2 due to the 50-50 ownership, but I have learnt that if she does the material participation, we could use 100% of the depreciation. Is this correct?

Any clarification will be much appreciated.

Regards,

Emilio

[Sean O'Keefe]

Quote from @Emilio Marconell:

Hi all, 

I have tried to clarify this issue for several weeks but not sure if I get it right... My wife is a high earner (w2) and I work 100% in growing our RE portfolio and qualify as real estate professional. We started investing (BRRR) in Dec 2024 and have an LLC (50%-50%) with 8 single family homes LTR. We both materially participate in our rentals (>500h between both of us). We plan to invest in about 15-20 properties per year.

We plan to do cost segregation and bonus depreciation in all our LTR and offset the paper loss of the properties (passive) with my wife W2 (active).

I initially thought we could only depreciate 50% of my wife's W2 due to the 50-50 ownership, but I have learnt that if she does the material participation, we could use 100% of the depreciation. Is this correct?

Any clarification will be much appreciated.

Regards,

Emilio

This question was already answered multiple times on the following threads: 

Real Estate Professional Status – Can I Use My Husband’s Passive Losses? https://www.biggerpockets.com/forums/51/topics/1259272-real-...

.

REPS Question/Advice needed https://www.biggerpockets.com/forums/51/topics/1257712-reps-...

If you currently have 8 properties and are planning to add 15-20 properties per year, you need a strong Real Estate CPA to help you with tax planning and filing. If you have one helping you with the 8 properties you have, ask them. If not, find some to help.  You may have already missed out on significant tax savings.