New tax law and $150,000 phase out on deductions

8 Replies

I’m wondering how the new tax law has affected buy and hold investors who phase out at the $150,000 W-2 max income for deductions. My wife and I own four properties in Washington, DC proper, and rehabbed one last year significantly before renting it out.

We were underwhelmed when learning we phase out of any tax deductions because we both have W-2 income that combines for $150,000+.

Am I missing something? So every improvement or repair we make in the future has no tax benefits? Am I thinking about this incorrectly?

We are not “real estate professionals” (we have W2 jobs) but without the tax benefit, I’ll certainly be re-thinking my strategy moving forward.

Any advice greatly appreciated.

@Wendell Hall

New tax law did not change the law you mention. You are entitled to deductions but if they creative passive activities losses, those losses may be suspended and carried forward. Your CPA can fill you in on the rest...

Originally posted by @Wendell Hall :

We were underwhelmed when learning we phase out of any tax deductions because we both have W-2 income that combines for $150,000+.

Am I missing something? So every improvement or repair we make in the future has no tax benefits? Am I thinking about this incorrectly?

We are not “real estate professionals” (we have W2 jobs) but without the tax benefit, I’ll certainly be re-thinking my strategy moving forward.

Any advice greatly appreciated.

Let's test your assurance that "any" advice would be appreciated :)

My advice is to stop thinking about tax benefits of real estate. This is the 3rd out of 3 main reasons to invest in RE, and the least important one. The first two are (in either order) cash flow and appreciation. 

But since you do focus on tax benefits - yes, you are missing something. These losses are not wasted but merely postponed until you sell. When you sell, you will be able to catch up with all your losses for all past years.

Originally posted by @Wendell Hall :

... rehabbed one last year significantly before renting it out.

The expenses of rehabbing before placing in service would be capitalized and depreciated, not deducted as expenses.

Originally posted by @Wendell Hall :

@Paul Allen Thanks. The BP community is great and I’ve been appropriately “schooled” in just a few hours. Greatly appreciated...

Right?!  Don't blink around here - you might miss something important!