Reducing Tax Burden for 2025/2026. What to do.

Minneapolis, Minnesota
Personal Finance
11moFollow

Reducing Tax Burden for 2025/2026. What to do.

Rick Recker
Member since 2024 · 5 posts · 5 votes

Asking for a friend in Minnesota...

Husband has earned approximately 900k in W2 income for 2025. This is expected to drop to @ 600k for 2026. they got wrecked on taxes for 2024 due to 100% reliance on W2 income.

A few existing conditions:

A paid for 900K-ish primary residence on a nice lake which has an adjacent undeveloped 100' lake lot that is flex zoned for SF, MF, or commercial (500k value). A healthy 401k and IRA savings for their age (early 50s), a paid for little old commercial building valued at 200k that is currently being renovated for wife to start a small business out of. There are probably 100k in bills for that building coming up late this year and hopefully the business will be open by the end of this year. Zero dollars of any kind of debt but not much cash on hand due to paying off real estate and kids college. There is @ 100k of available cash right now, and will be additional 250k or so cash in February. The wife is very adamantly opposed to debt (Dave Ramsey). Husband is also anti-debt but is willing to consider a good business case if it will create opportunity to ease the upcoming tax burden.

The primary residence is on a lake and could easily be converted into a triplex that would be 1/3 primary residence, and 2/3 STR and/or family visit spaces. Would need some light remodeling to do this but the general layout is already there.

I've been hearing about changes in bonus/accelerated depreciation that sound interesting including some STR stuff, but haven't exhaustively researched them.

Again, the main goal is to reduce tax burden but there is also a long term plan to possibly hold some income producing real estate as a bridge income along with other investments to allow leaving W2 job in the next few years

What would you do in the remaining 2 months of 2025? What to do in 2026? It doesn't necessarily need to be real estate. I heard Robert Kiyosaki talking about billboards yesterday for example.

Feel free to ask further questions, offer your ideas, and I'll pass them on.


Thank you!





3Reply
198 views

Most Popular Reply

Ricardo R.Pro Member
Property Manager · Michigan Ctr, MI · Member since 2016 · 661 posts · 581 votes
11mo

Hey Rick,

Your friend’s in a great position — high income, zero debt, and some solid real estate assets to work with. The challenge now is turning that W2-heavy profile into something that spins off tax-sheltered income. A few ideas to think through before the year ends and into 2026:

1. W2 income = no write-offs.
That’s the root problem. When all your income comes from a paycheck, the IRS doesn’t give you much room to maneuver. The best way to ease the burden is to create or buy something that generates business or passive income — because business owners and investors get to deduct everything it takes to earn that income.

2. The small business buildout could help a lot.
That $100k going into the wife’s commercial building? If it’s tied to an active business, most of that can be depreciated or expensed — especially under Section 179 or bonus depreciation. Get a good CPA to classify those improvements correctly. Every dollar you can expense through the business helps offset that 2025 income.

3. The lake house conversion idea has potential — but tread carefully.
If they carve out 2/3 of the property into a short-term rental, they could qualify for STR bonus depreciation if managed as an active business (not just passive). That means cost-segregating the property, depreciating furniture, appliances, etc., and writing off a big chunk upfront. The catch: they need to materially participate (track hours, manage bookings, etc.) and the property has to be in service by year-end for 2025 benefits.

4. The adjacent lake lot:
Could be a sleeper move. If they're open to development or even selling it under an installment sale, they can control when gains hit their tax return. Alternatively, contributing it into an LLC and partnering with a developer could defer or spread income while creating write-offs from early expenses.

5. Other moves before year-end:

  • Max out 401k/IRA/HSA contributions. Basic but still effective.

  • Consider a Solo 401k or SEP if either spouse has side income.

  • Fund depreciation-heavy investments (real estate, equipment, even billboards like Kiyosaki mentioned). Anything with upfront write-offs works better than passive index investing at their bracket.

  • Talk to a CPA about cost segregation on any rental or business-use property. That’s where the big tax savings are hiding.

6. 2026 and beyond:
Once income drops to $600k, it’s the perfect time to get a couple of rentals or a small commercial property into service. The depreciation will hit hard against that W2 income and smooth the transition into semi-retirement.

My Advice: if they do nothing, they’ll keep getting hammered because W2 income offers zero flexibility. If they strategically activate the business, short-term rental, or a depreciation-heavy investment before year-end, they can write off tens (maybe hundreds) of thousands legitimately. But they’ll need a proactive CPA who understands real estate — not a typical “file and forget” accountant; Rick I really hope this helps you help your friend, I sent you DM on BP, it's one of the reasons I do this, I hope you can assist. 

[email protected]810-844-1104
3Reply
See this reply in the discussion

10 Replies

Jump to latestLatest
  • Ricardo R.Pro Member
    Property Manager · Michigan Ctr, MI · Member since 2016 · 661 posts · 581 votes
    11mo

    Hey Rick,

    Your friend’s in a great position — high income, zero debt, and some solid real estate assets to work with. The challenge now is turning that W2-heavy profile into something that spins off tax-sheltered income. A few ideas to think through before the year ends and into 2026:

    1. W2 income = no write-offs.
    That’s the root problem. When all your income comes from a paycheck, the IRS doesn’t give you much room to maneuver. The best way to ease the burden is to create or buy something that generates business or passive income — because business owners and investors get to deduct everything it takes to earn that income.

    2. The small business buildout could help a lot.
    That $100k going into the wife’s commercial building? If it’s tied to an active business, most of that can be depreciated or expensed — especially under Section 179 or bonus depreciation. Get a good CPA to classify those improvements correctly. Every dollar you can expense through the business helps offset that 2025 income.

    3. The lake house conversion idea has potential — but tread carefully.
    If they carve out 2/3 of the property into a short-term rental, they could qualify for STR bonus depreciation if managed as an active business (not just passive). That means cost-segregating the property, depreciating furniture, appliances, etc., and writing off a big chunk upfront. The catch: they need to materially participate (track hours, manage bookings, etc.) and the property has to be in service by year-end for 2025 benefits.

    4. The adjacent lake lot:
    Could be a sleeper move. If they're open to development or even selling it under an installment sale, they can control when gains hit their tax return. Alternatively, contributing it into an LLC and partnering with a developer could defer or spread income while creating write-offs from early expenses.

    5. Other moves before year-end:

    • Max out 401k/IRA/HSA contributions. Basic but still effective.

    • Consider a Solo 401k or SEP if either spouse has side income.

    • Fund depreciation-heavy investments (real estate, equipment, even billboards like Kiyosaki mentioned). Anything with upfront write-offs works better than passive index investing at their bracket.

    • Talk to a CPA about cost segregation on any rental or business-use property. That’s where the big tax savings are hiding.

    6. 2026 and beyond:
    Once income drops to $600k, it’s the perfect time to get a couple of rentals or a small commercial property into service. The depreciation will hit hard against that W2 income and smooth the transition into semi-retirement.

    My Advice: if they do nothing, they’ll keep getting hammered because W2 income offers zero flexibility. If they strategically activate the business, short-term rental, or a depreciation-heavy investment before year-end, they can write off tens (maybe hundreds) of thousands legitimately. But they’ll need a proactive CPA who understands real estate — not a typical “file and forget” accountant; Rick I really hope this helps you help your friend, I sent you DM on BP, it's one of the reasons I do this, I hope you can assist. 

    [email protected]810-844-1104
    3Reply
  • Josh L.
    USA · Member since 2023 · 145 posts · 84 votes
    11mo

    @Rick Recker Timing can be tight for real estate strategies since many are already closing on short-term rentals for 2025. The reinstatement of bonus depreciation definitely helps. They clearly have an appetite for tax savings given their high income, but I’d make sure they also desire to have active goals (ie., starting a business or managing a short-term rental) to align with those strategies. Otherwise, don’t let taxes drive personal goals. Thanks for sharing.

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    11mo

    I would hire the best fee based financial planner.

    1Reply
  • Cynthia MeyerBusiness Member
    Rental Property Investor · Gladstone, NJ · Member since 2019 · 21 posts · 16 votes
    11mo

    When you get into passive loss strategy planning, you definitely want both a real estate-savvy CPA and a  Certified Financial Planner® who specializes in real estate investors on your team (preferably a Fee-Only planner as they are true fiduciaries). Passive loss strategies such as REPS and the STR loophole are known audit triggers so your friend would want to do this the right way. Bigger Pockets has a good search tool - there are lots of us!

    [email protected]908-274-1298
    Real Life Planning
    WebsiteView Page
    1Reply
  • Mike Anderson
    Rental Property Investor · Clayton, GA · Member since 2020 · 185 posts · 152 votes
    11mo

    One of the most important person on your team is your financial guy, I'm a real estate guy and I have zero interest in learning all the in's and out's of taxes, in fact I get super angry just hearing about how i'm wasting money to go into a bottomless pit of no where. My guy handles all of this and I just ask him to steer me in the right direction when I am making changes or planning, and he does the rest and sends me the bill. This isn't the place to save money just go get a good firm and pay them. 

    2Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    11mo

    @Rick Recker 

    Given their high W-2 income, debt-free position, and goal of reducing future taxes, the best move is to front-load deductible expenses and convert assets into tax-efficient income streams.

    Before year-end 2025, they should accelerate the wife's business renovation and equipment purchases to capture 100% bonus depreciation, set up a donor-advised fund for charitable deductions, hiring kids, and maximize 401(k)/Solo401k and IRA contributions. Converting part of the lake home into a short-term rental can generate non-passive income and unlock large depreciation write-offs.

    In 2026, they should focus on launching the wife’s business (potentially electing S-Corp status), setting up a Health Reimbursement Arrangement (HRA) for tax-free medical reimbursements, and shifting family income strategically.

    This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.

    [email protected]941-914-7779
    INVESTOR FRIENDLY CPA®5241 Reviews
    WebsiteView Page
    TaxMD® | AI-Powered Tax Planning
    WebsiteView Page
    1Reply
  • Jason MalabuteBusiness Member
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 901 votes
    11mo

    You should hire a tax professional to create a strategic tax plan. That’s the best way to see what moves make sense for the rest of 2025 and into 2026. A good plan will show how to structure things like your wife’s business, potential rentals, and depreciation so everything works together to reduce your overall tax burden while transitioning away from W-2 income.

    Malabute & Company CPAs525 Reviews
    WebsiteView Page
    0Reply
  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    11mo

    OP. As mentioned they need to talk with specialists.  To many questions on an open forum.

    1.  Early depreciation, can wife qualify as REP?

    2.  His w2 upfront can he ask for deferred compensation instead?

    3.  What does he do?  Can he invest in office space?

    4.  Kids, deduct their college costs by paying them to advertise.   Depends on his business.

    5.  Have they fully maxed out savings?

    6.  Hopefully they paid ahead on their taxes.   They should have more cash on hand if they did not.  They should not have paid down on properties without setting aside for taxes. 

    Really need to attack the W2 angle.  

    Need a professional to go thru their entire portfolio and tax positions.  

    0Reply
  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    11mo

    On the STR side, the timing could be tight especially if they're building out. Assuming they do get it up And running before year end, they'd need two stays at least, materially participate, and not use too much for personal use.

    I'd encourage them to max out 401k's, HSAs, and then consider donor advised funds with highly appreciated stock. There's likely more than can be done before year end but the timing will be tight for any real estate items. 

    [email protected]
    Brick House CPAs53 Reviews
    WebsiteView Page
    0Reply
  • Jason MalabuteBusiness Member
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 901 votes
    11mo

    A lot of real estate investors are rushing to close before year-end, so timing can be tight. The return of bonus depreciation is a big win for those doing short-term or mid-term rentals. But before diving in, make sure the strategy actually fits your bigger goals. Tax savings are great, but they should support your lifestyle and business plans — not dictate them.

    Malabute & Company CPAs525 Reviews
    WebsiteView Page
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free