Need to show 250K loss. Strategies?

10 Replies

I'm doing tax planning for the next year. Looking for strategic guidance from an investments standpoint (of course I'll work with my CPA on the details)-

1. My individual taxable income in 2021 (after all deductions) = 250K 

2. Cash $1M (for investments this year)

3. I need to create a loss from real estate investments of 250K to pay zero taxes in my personal 2021 filing.

Here are some questions I've been pondering over-

A. What's the value of the rental RE portfolio I need to buy to create this loss?

B. What's ideal leverage will accomplish this goal? Any other accounting guidelines such as depreciation methods etc. that could help?

C. Any other RE/non-RE ideas which can help me accomplish the above goal.

Thanks!

      @Jay Pillalamarri

      Hi Jay. It sounds like you are looking for accelerated depreciation. You can take it after getting a cost segregation study completed on your property.

      There are pros and cons you should research and understand. We just completed 7 of them a few months ago. We averaged 24% year 1 depreciation across the houses.

      If you had the same result, you’d need $1M worth of property. Leverage is up to you and doesn’t impact the write offs with accelerated depreciation. The only direct impact it has on taxes is being able to write off the interest paid annually.

      Ideally you should base your goals on making economic profits, not generating tax losses. Tax benefits for the most part take care of themselves if you have at least a room temperature IQ. Building a truly profitable business on the other hand takes enduring skill, patience intelligence and effort.

      Originally posted by @Jay Pillalamarri :

      I'm doing tax planning for the next year. Looking for strategic guidance from an investments standpoint (of course I'll work with my CPA on the details)-

      1. My individual taxable income in 2021 (after all deductions) = 250K 

      2. Cash $1M (for investments this year)

      3. I need to create a loss from real estate investments of 250K to pay zero taxes in my personal 2021 filing.

      Here are some questions I've been pondering over-

      A. What's the value of the rental RE portfolio I need to buy to create this loss?

      B. What's ideal leverage will accomplish this goal? Any other accounting guidelines such as depreciation methods etc. that could help?

      C. Any other RE/non-RE ideas which can help me accomplish the above goal.

      Thanks!

           Yes, this can be achieved depending on the type/class of assets you will acquire or already have. But you have to be careful with the Passive Activity Loss rules if you or your spouse is not qualified as the real estate professional. 

          Primarily a zoning question.  Start a storage location with just cargo containers.  Buy 80 8 by 20 units.  Write off the containers, fence, security and road development.  Be about a $300,000 investment not including the land.  

          Primarily a zoning question.  Start a storage location with just cargo containers.  Buy 80 8 by 20 units.  Write off the containers, fence, security and road development.  Be about a $300,000 investment not including the land.  

          I make similar at my W2 and I can't take any losses on my real estate portfolio because I make too much to take a loss on real estate.  Business losses, however, are unlimited.  But the bite that I've found is that, unlike real estate "losses", business losses tend to be real money losses and, from experience, I wouldn't suggest it.

          @Jay Pillalamarri

          First, I cannot support your goal of paying zero taxes. I much prefer the primary goal being either generating cash flow or, better yet, building long-term equity in assets. Whatever lets me accomplish this is what I would pursue. Reducing taxes is secondary. Dropping them to zero is a poor goal either way, because at some point the effort is no longer worth the small savings. 

          Don't get me wrong, I'd love to pay zero taxes if it's possible. I just would not be choosing my business strategies based on this goal. Once I chose a strategy, then I'll do my best to reduce taxes. If I manage to drop them to zero - great. If not - still no problem if I'm accomplishing my cash flow or asset accumulation goals.

          Next. If you're single and have a full-time $250k job, you cannot offset this W2 income with rental losses. Not allowed by law. No matter how much real estate you buy and what strategies you apply. If you make $250k from your business, such as being a consultant - same problem basically, with some twists.

          To be able to offset your $250k income with rentals, either your $250k needs to be self-employment income from real estate, like being a realtor, or you need to be married to someone who is involved in real estate basically full-time and qualify as a Real Estate Professional.

          In short, you're asking the wrong questions and getting suggestions that are probably not helpful.

          @Jay Pillalamarri typically you can’t deduct passive losses from your active income. There are some thresholds below which you can through real estate (approximately $150k) but you are passed that threshold to my knowledge. Unless you are a full time real estate professional in which case you can deduct from your active income. Obligatory this is not tax advice and I am not a cpa.