Seeking Advice on Tax Strategies and Pr

Seattle, Washington
New Member Introductions
2yFollow

Seeking Advice on Tax Strategies and Pr

Candi Kham
New to Real Estate · Seattle · Member since 2024 · 9 posts · 6 votes


Hi everyone,

I'm seeking guidance on navigating the world of real estate investing, particularly in the context of tax optimization. Currently, I find myself in the 37% tax bracket due to W2 income and I'm eager to explore avenues to shelter taxes through real estate investments. I'm specifically interested in acquiring a rental property within the $800k to $1.2M price range in Washington state.

However, upon evaluating rental properties in the current market, I've noticed a concerning trend of negative cash flow. This raises the question: what type of property should I be targeting? Should I consider house hacking to mitigate the negative cash flow, or opt for an older home in a sought-after neighborhood, even if it means breaching cash reserves every month?

I welcome any insights, suggestions, and tax strategies from experienced investors in this forum. Your expertise and advice would be immensely valuable as I embark on this journey into real estate investing. Thank you in advance for your assistance!

1Reply
25 views

Most Popular Reply

David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
2y

@Candi Kham

You looking to use real estate as a tax shelter?  There are plenty of posts looking to do that.  But, You really can't deduct passive losses onto your main 1040, especially since you are in the 37% bracket.  Additionally, you need to have losses to deduct --- that's kinda the opposite of making money.  You can try to use depreciation, but there is only so much, you still have to pay the depreciation back (unless you basically die...)

You should check out these threads basiclaly about high quality vs cash flowing...  I'd stick with high quality.  

https://www.biggerpockets.com/forums/48/topics/1159104-overleveraging-net-worth-cash-flow-and-headache-factor

https://www.biggerpockets.com/forums/52/topics/1159067-less-...

https://www.biggerpockets.com/forums/48/topics/1131066-cash-flow-is-not-king

Its a bunch of reading.  Hope this helps.  Happy to chat.  Good luck.

1Reply
See this reply in the discussion

12 Replies

Jump to latestLatest
  • Account Closed
    Member since 2023 · 43 posts · 28 votes
    2y
    Quote from @Candi Kham:


    Hi everyone,

    I'm seeking guidance on navigating the world of real estate investing, particularly in the context of tax optimization. Currently, I find myself in the 37% tax bracket due to W2 income and I'm eager to explore avenues to shelter taxes through real estate investments. I'm specifically interested in acquiring a rental property within the $800k to $1.2M price range in Washington state.

    However, upon evaluating rental properties in the current market, I've noticed a concerning trend of negative cash flow. This raises the question: what type of property should I be targeting? Should I consider house hacking to mitigate the negative cash flow, or opt for an older home in a sought-after neighborhood, even if it means breaching cash reserves every month?

    I welcome any insights, suggestions, and tax strategies from experienced investors in this forum. Your expertise and advice would be immensely valuable as I embark on this journey into real estate investing. Thank you in advance for your assistance!


    Consider targeting properties that have the potential for appreciation in value, as well as options for utilizing tax-saving strategies such as cost segregation and 1031 exchanges. House hacking can also be a viable option to offset negative cash flow. It's essential to work with a knowledgeable real estate agent and tax advisor to ensure you are making informed and strategic investment decisions.
    0Reply
  • Julio GonzalezPro Member
    Specialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
    2y

    Welcome to the real estate investing journey, Candi! Your thoughtful approach to navigating tax optimization within the realm of real estate is commendable.

    561-253-6640
    0Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    2y

    @Candi Kham

    You looking to use real estate as a tax shelter?  There are plenty of posts looking to do that.  But, You really can't deduct passive losses onto your main 1040, especially since you are in the 37% bracket.  Additionally, you need to have losses to deduct --- that's kinda the opposite of making money.  You can try to use depreciation, but there is only so much, you still have to pay the depreciation back (unless you basically die...)

    You should check out these threads basiclaly about high quality vs cash flowing...  I'd stick with high quality.  

    https://www.biggerpockets.com/forums/48/topics/1159104-overleveraging-net-worth-cash-flow-and-headache-factor

    https://www.biggerpockets.com/forums/52/topics/1159067-less-...

    https://www.biggerpockets.com/forums/48/topics/1131066-cash-flow-is-not-king

    Its a bunch of reading.  Hope this helps.  Happy to chat.  Good luck.

    1Reply
  • Candi Kham
    OP
    New to Real Estate · Seattle · Member since 2024 · 9 posts · 6 votes
    2y

    Thank you so much for the warm welcome! I'm thrilled to embark on this exciting journey into real estate investing. It's truly encouraging to hear your kind words about my approach to tax optimization. I'm looking forward to learning and growing in this dynamic field alongside such supportive peers! 

    0Reply
  • Account Closed
    Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
    2y

    Hello @Candi Kham, 

    Lots of our clients in CA are currently doing this. I however have an "order of operations" I think most people should follow when it comes to investing. Get cashflow first, and lots of it. Then once you no longer need cashflow, start playing these longer appreciation games until the end of time. I made this mistake with a LARGE sum of money early on, and even lost some of it completely on high risk investments as I was trying to "play like the big boys". If you can qualify for the short term rental loophole or real estate professional, you can use depreciation via cost segregation to wipe out a large portion of your tax bill. I would advice you not to let the tax tail wag the income dog. Again, ask me how i know :).  Best of luck in your real estate journey! 

    0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    2y

    @Candi Kham, Although your access to depreciation may be limited because of the passive nature of investing, you can still have a great overall tax benefit by purchasing right.  The Internal Rate of Return needs to be your holy grail.

    1. Appreciation (yes everyone thinks of this.  It's dollars in your pocket when you sell - or it's added buying power if selling using a 1031 exchange.

    2. Depreciation - You may be limited on how much you can take so keep that in mind and maximize cash flow to access as much depreciation as possible. This might even mean purchasing properties for cash to maximize NOI. But then offsetting that NOI with depreciation. You can also look into some of the strategies that @Account Closed highlighted.  To increase your depreciation.

    3 Amortization -This one will be the push and pull.  More debt equals more amortization of the loan.  But it also means less net income to be offset by depreciation.

    4. Cash flow itself - If appreciation is high enough then maybe a negative cash flow is good.  There's a lot of folks that play this game in high appreciation areas.  Just make sure you have great job stability.  Otherwise you're one pink slip away from a tsunami sized disaster.

    The 1031 Investor5137 Reviews
    WebsiteView Page
    0Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    2y

    If you are in the 37% tax bracket, the goal is to be cash-flow on an investment and have that income being shielded(by depreciation) so it isin't taxed at 37%.

    once you go above the $200,000 purchase price point, it is harder to find properties that will cash-flow with the typical 20% down payment.

    Best of luck to you.

    [email protected]917-280-8544
    Basit Siddiqi CPA4.979 Reviews
    View Page
    0Reply
  • Matthew Kwan
    Lender · Seattle, WA · Member since 2022 · 482 posts · 768 votes
    2y

    HI Candi.

    I am not a CPA, I am an investor myself and mortgage broker that focuses on helping with investor on expanding their portfolio in real estate. Oftentimes, we would work closely with CPA to make sure how our borrower's taxes can be filed that would save them from paying taxes, but also making sure they can qualify in a lender's perspective.

    You would want to make sure your first few deals has an acceptable of return in order to lower your DTI and expand your investment portfolio in Real Estate. However, you could still have - cashflow on paper, but still break even or potentially have + cashflow on your taxes. Lenders will use your tax returns schedule E to calculate your monthly rental income. The goal is to show that you are not making money in the lens of the IRS, but also making sure that you can + cashflow in the lending world.

    @Albert Bui @Carlos Valencia

    1Reply
  • Bill HamptonBusiness Member
    Accredited Investment Fiduciary, AIF®, Financial Planner, Tax Strategist, Real Estate Investor · Atlanta, GA · Member since 2012 · 2k+ posts · 977 votes
    2y

    @Candi Kham,

    I recommend finding an accountant that specializes in real estate taxation and financial planning. You may want to consider working with your accountant remotely to expand your options.

    I would also recommend looking for a tax strategist who is willing to work with you throughout the year, not just when preparing your tax return. You want an accountant that can help you strategize and who is responsive when you want to know the tax consequences of the decisions you are making throughout the year.

    Good luck in your search.

    404-482-3170
    Hampton Tax and Financial Services LLC4.7106 Reviews
    WebsiteView Page
    0Reply
  • Candi Kham
    OP
    New to Real Estate · Seattle · Member since 2024 · 9 posts · 6 votes
    2y
    Quote from @Matthew Kwan:

    HI Candi.

    I am not a CPA, I am an investor myself and mortgage broker that focuses on helping with investor on expanding their portfolio in real estate. Oftentimes, we would work closely with CPA to make sure how our borrower's taxes can be filed that would save them from paying taxes, but also making sure they can qualify in a lender's perspective.

    You would want to make sure your first few deals has an acceptable of return in order to lower your DTI and expand your investment portfolio in Real Estate. However, you could still have - cashflow on paper, but still break even or potentially have + cashflow on your taxes. Lenders will use your tax returns schedule E to calculate your monthly rental income. The goal is to show that you are not making money in the lens of the IRS, but also making sure that you can + cashflow in the lending world.

    @Albert Bui @Carlos Valencia


    Hi Matthew,

    Thank you for your input. I've just secured my first deal, and it's set to close next week. Could you please introduce me to your CPA who can assist with tax-saving strategies?

    0Reply
  • Candi Kham
    OP
    New to Real Estate · Seattle · Member since 2024 · 9 posts · 6 votes
    2y
    Quote from @Bill Hampton:

    @Candi Kham,

    I recommend finding an accountant that specializes in real estate taxation and financial planning. You may want to consider working with your accountant remotely to expand your options.

    I would also recommend looking for a tax strategist who is willing to work with you throughout the year, not just when preparing your tax return. You want an accountant that can help you strategize and who is responsive when you want to know the tax consequences of the decisions you are making throughout the year.

    Good luck in your search.


    Thank you for the insightful recommendations! Finding an accountant specializing in real estate taxation and financial planning sounds like a solid plan. Working with someone remotely could definitely broaden my options, especially considering the dynamic nature of real estate investments.

    I appreciate the advice on seeking a tax strategist who remains engaged throughout the year. It's crucial to have someone who can provide proactive guidance and help navigate the tax implications of decisions as they arise. I'll keep this in mind as I search for the right professional to support my endeavors.

    1Reply
  • Candi Kham
    OP
    New to Real Estate · Seattle · Member since 2024 · 9 posts · 6 votes
    2y
    Quote from @David M.:

    @Candi Kham

    You looking to use real estate as a tax shelter?  There are plenty of posts looking to do that.  But, You really can't deduct passive losses onto your main 1040, especially since you are in the 37% bracket.  Additionally, you need to have losses to deduct --- that's kinda the opposite of making money.  You can try to use depreciation, but there is only so much, you still have to pay the depreciation back (unless you basically die...)

    You should check out these threads basiclaly about high quality vs cash flowing...  I'd stick with high quality.  

    https://www.biggerpockets.com/forums/48/topics/1159104-overleveraging-net-worth-cash-flow-and-headache-factor

    https://www.biggerpockets.com/forums/52/topics/1159067-less-...

    https://www.biggerpockets.com/forums/48/topics/1131066-cash-flow-is-not-king

    Its a bunch of reading.  Hope this helps.  Happy to chat.  Good luck.

    Thanks for sharing your insights. I've recently secured my first deal, and it's set to close next week. While this property may not immediately generate cash flow, its location near me and easy freeway access make it appealing to young professionals as potential tenants. My question is: What steps should I take next to ensure success, and how should I initiate the rental process? 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free