Rental to help offset 120K in income tax

11 Replies

Hey guys,

Im trying to get an idea of how much a rental property could help with offsetting income taxes. Im looking for a SFH here in SoCal to rent out long term. The purchase price is 250,000 and the rental income is 1,800. My tax bracket is 44% (33% federal and 10% state). Is there a ballpark figure or method of determining this?

Thanks!

You're way past the phase out for getting to utilize any rental losses to offset your earned income.

Unless you're a full time real estate professional (rei pro per IRS standards) then just adding rentals is not necessarily going to help your tax liability.

You're just going to have losses (potentially on paper after depreciation) that carry forward. Do you own rentals currently or is all of your income from w2?

This is W2 income and I dont currently have any rental properties. I thought a rental would reduce my tax liability but perhaps I am mistaken. 

Rentals have tax benefits in that many make money but show a loss on the tax return after depreciation. 

However this doesn't help you. It's passive losses. They can only offset passive income. All of your income is active (w2) income.

@Desmond Price

If you were able to take deductions it generallly is taxes, insurance, maintenance, mortgage interest, and depreciation.  Remember you will also have rental income that offsets the deductions as well. In addition the real estate is passive income and you don't have to pay social security or Medicare on rental income. 

As an investor you should not be trying to use your investments to loose money. Try using IRAs 401ks, and other tax deferred or tax free accounts to lower taxes. 

 Building wealth with Tax deferred or tax-free vehicles is a much faster way to reach your goals because of the tax liability from earned income. 

Leave CA! That would be a good start to lowering your taxes

Thanks to all who responded. Its disappointing that a rental will not have any tax benefits. I'm stuck in CA for at least another 3 years.  

Worse things than "stuck in California" :-). I suppose you also live in an area where when you ask an apartment complex how much is rent they reply, "How much do you make?" Enjoy the weather! (Not being snarky, I would love to spend a year or two in California...and plan to at some point).

Originally posted by @Desmond Price :

This is W2 income and I dont currently have any rental properties. I thought a rental would reduce my tax liability but perhaps I am mistaken. 

Unless you buy a property that is negative cash flow on purpose thus us really a bad tactic

You're better off going with a ROTH-ira/IRA, 401/403, what you really should be fount us talking to a really good tax adviser. They can save you money with tax sheltered accounts.

We have rentals and they all cash flow positive even with the repairs deductions they are positive. Simply having a rental doesn't automatically lower your taxes

Originally posted by @Desmond Price :

Thanks to all who responded. Its disappointing that a rental will not have any tax benefits. I'm stuck in CA for at least another 3 years.  

Rental properties do have tax benefits, but you can't realize them until the year you sell the property. Your losses aren't 'disallowed' they are SUSPENDED.

However, your strategy seems to be to buy a rental property that loses money so you can write the losses off against your W2 income. If you just want to lose money and you don't care where the money goes, there are more efficient ways to reduce your taxable income. Why not give it to a charity?

@Paul Allen Agreed - Tax deferred vehicles or charity seem to be a better options then poor investments.

Won’t as much as you like. There is a limit to deduction of rental income losses which I think gets capped at 150k annual gross income. That number has no bearing on California where 150k is not a high number. How about refinancing your primary home and taking cash out. Just use the proceeds to be a real estate investor or lender.

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