Tax savings through neg/break-even invest property?

3 Replies

Payed an arm and a leg in taxes this year (I know not a bad problem to have) and want to reduce the cost next year. If I purchase a property which will break even at best and possibly cost me a bit can I make up the difference in tax savings? The other assumption or gamble here is over time the property will appreciate and rents will increase to a point where I no longer am losing on the investment. Thoughts?

Depends on various factors.

But yes, if you have a rental property that is producing net passive income, you can invest on the property that has high appreciation potential but less cash flow.

That way you can use the tax loss ( it might still have positive cash flow) to offset other passive income.

This way, you can also tap into the equity of the appreciated house in few years and still enjoy the tax losses. 

However, I would just invest to have actual -ve cash flow to avoid taxes.   I would invest in the house that has a tax loss but still at minimum break even cash flow.

There other ways to use The passive incomes too.

If you are a high earner, look into investing in new companies with high potential. This will give you passive loss. 

But remember,  if you have overall loss, the loss is limited unless you are RE pro. 

Is your AGI over 150 k ? If it is, you completely lose the 25k deduction of passive income.

@Noel R.

I can’t believe you are asking if it makes sense to make a poor investment to save on taxes. No it doesn’t—keep investing to make money  you will run into losers somewhere along the line. Do your best to make money. 

Look at tax free accounts such as Roth IRAs/401ks and health savings accounts and do your investments there - much smarter move. 

Make as much money as you can and make as much of that money tax free as possible. 

@Noel R.

It is tough to answer this question without seeing the full picture.

Are you making above $150,000 and your passive income is 0 or negative?
Then acquiring additional passive income with losses will not help your tax situation

Are you making above $150,000 and your passive income is $0 or above?
Then acquiring additional passive income with losses will help your situation; but it would only help you in the fact it can bring your passive income to $0. Remaining losses get carried forward.

Are you making less than $150,000 and your passive income is $0 or negative?
You can utilize up-to $25,000 of passive losses to net against your other income. Allowance of $25,000 of passive losses starts phasing out at $100,000 of income

Basit Siddiqi, CPA

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