W2 Job and Real Estate Tax Deductions

3 Replies

Let's say you're a new investor with a W2 job. As you start buying property out of state (air travel needed), can you deduct the travel? The reason I ask is because I've heard that you need to have your primary income in the business of real estate, such that if your W2 is a full-time job making you the majority of your money, the real estate investing is not tax deductible. At what point can you start claiming tax write-offs for the real estate business? Do you need an LLC or or can you purchase as an individual with the same tax incentives?

Originally posted by @Bob Lett :

Let's say you're a new investor with a W2 job. As you start buying property out of state (air travel needed), can you deduct the travel? The reason I ask is because I've heard that you need to have your primary income in the business of real estate, such that if your W2 is a full-time job making you the majority of your money, the real estate investing is not tax deductible. At what point can you start claiming tax write-offs for the real estate business? Do you need an LLC or or can you purchase as an individual with the same tax incentives?

You can always deduct the cost of real estate operations. The losses as a result of the deductions might be limited if you are above certain income level and if you are not a real estate professionals. 

I think reading about the passive activity loss and the real estate professionals will give you your answers. 

@Bob Lett

If you travel to an area where you own no properties but ultimately purchase a property in the area, the travel cost may be factored into the cost basis of the property.

If you travel to an area where you own properties, it may be currently expensed.

@Basit Siddiqi

Thank you. Just to clarify, can the trip cost be expenses or deducted come tax time? I see the word “expensed” thrown around a lot but to me, that is is like me doing my monthly expense report for my w-2 job and receiving payment for my expenses that I paid for out of pocket. I don’t think that is achievable with a w2 job and receiving income from a rental property correct?

From my understanding that is deducted at the end of the year. Thank you for answering my elementary questions as I seek to understand the tax code better to help become a more well rounded investor.