Tax advantage for property purchase

[Brianna Babienco]

How do you figure out how much money you’ll save on your taxes by purchasing an investment property? Or how do you calculate tax advantage? Say (very hypothetically😂) I had an income of 400,000 and I bought a $100,000 house with 25% down. What would my tax savings be from a purchase like this? Maybe this is too broad and too many factors involved. Just wondering if there’s a calculator to help calculate tax advantages. Thanks for humoring a newbie!

[Ashish Acharya]

@Brianna Babienco , welcome to the REI journey.

Besides tax advantages, there is a high return via the real estate appreciation (both longterm and short-term).  That is always a good thing. When I think about it, someone else is making you rich by making your mortgages payments too. 

Strictly speaking from the tax perspective: 

1) With depreciation (phantom expenses), you will always have more cash flow than actual Income that you show on your return. Sometimes you have cashflow even when you have a loss from the tax perspective. 

1) If you didn't have $400k of income, you could deduct 25k of a passive rental loss against your W-2 ( ordinary income)  limited to phase out starting 100k. 

2) if you are such a high earner, you can offset the passive loss that you generate via rental properties to the other passive income  ( investment in the partnership as a limited investor or any other business where you materially do not participate). High earner should generally invest 85% in the safe market and 15% of the aggressive market ( start-ups).  

3) If you have rentals and are such a high earner, you can hire your children so that they don't have to pay taxes on some of your income ( limited to standard deduction) or pay them more than the standard deduction and they still pay fewer taxes.  

4) You can time the disposition of the rental property right so that when you have very high income in a year, you can dispose the rental property and use all the suspended passive loss that you were not allowed to take because of your high earnings in the prior year ( this loss can be substantial)  

5) if you plan it right, you can convert some of the personal purchases to rental expenses ( lawn mowers, Ipads, laptops  you get it)

6) some of the vacation travel might be planned right to make it a business trip and get tax deductions.

There are much more.. so get started :)