Tax Benefits from SFR and MFR

[Garrett Terrell]

I understand that there are tax benefits to owning real estate, however what are some items I can give to my CPA so we can lower our taxable income?

We made about 350k as a household in 2020 and I do not want to be stuck with a 75k tax bill.

My real estate business is already in an S Corp but what do you guys do with your rentals, we currently one one sfr rental, a primary and a 4 plex.

Any help is appreciated thank you!

[Ashish Acharya]

Originally posted by @Garrett Terrell:

I understand that there are tax benefits to owning real estate, however what are some items I can give to my CPA so we can lower our taxable income?

We made about 350k as a household in 2020 and I do not want to be stuck with a 75k tax bill.

My real estate business is already in an S Corp but what do you guys do with your rentals, we currently one one sfr rental, a primary and a 4 plex.

Any help is appreciated thank you!

You will hear people say you can save taxes via RE. RE is one investment that you can take deductions from depreciation without any cash outflow. On every other business, to get the deductions, you have to spend money. But, in RE, your asset doesn't depreciate like other assets ( eg car, printer, machines) but you get to take the depreciation deduction. That is the beauty. 

The problem with high-income earners (Income around 150 -180k), who cant qualify as a RE professional (There is a test), is that the depreciation-induced losses are limited because its passive in nature. This applies to both SFR and MFR. Passive losses cannot offset the non-passive income (W-2/ other business income). However, the losses that were limited in a year are not lost, they are just suspended. You will eventually benefit from it but not the same year.

There are someway to convert passive losses to active but need tax planning with the advisor. 

If a high earner is a part-time worker/business owner or has a spouse (with W-2 job) who can qualify as RE pro, then there can be a huge tax saving as losses are not limited.