W2 Income Tax Deduction Strategies through Syndication

Member since 2019 · 1 post · 1 vote

Hi Guys!

I am new to the Bigger Pockets Family. But I am in great distress seeing how much taxes are deducted from my W2 income. I need help with understanding how to reduce my taxable income strategically through syndication and/or apartment investing. Here are my questions below. Thank you so much for all your answers in advance!!!

1. If I were to syndicate an apartment with other investors. How does the reduction in taxable income work? Do I write off the whole depreciation to myself if I have other passive investors? or is it dispersed by all the investors?

2. If I were to invest in an apartment property myself, how would the deductions work numbers-wise? I am trying to understand numerically how I can reduce my taxable income legally through apartment investing.

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Nick B.

Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes

DISCLAIMER: I am not a CPA but this is what I know/understand about depreciation and income:

Depreciation first applies to passive rental income.
If there is anything left, the reminder (up to $25K) applies to ordinary income (W-2, interest, dividends, etc.) provided that the ordinary income is below $100K.
If other income is between $100K and $150K, excess depreciation gets gradually reduced and does not apply if the income is above $150K.
The remaining depreciation (if any) accumulates and gets fully deducted from any income upon the sale of the property.

The "$100-$150K" rule does not apply to real estate professionals.

As far as the source if depreciation, it does not matter if you are a sole owner of a property or an investor in a syndication. Either way you get your share of depreciation (100% in the case of sole ownership and whatever %% of ownership you have in a syndication).

For example - non-real estate professional:

W-2 income : $90K
Rental income: $10K
Depreciation: -$40K
Net rental income (loss): -$30K
Net income: $90K-$25K (max limit)=$65K
Excess depreciation: $5K - carry over to the next year

If income goes above $150K, the entire $30K passive loss becomes suspended until the property is sold.

Ask a CPA for more details and explanations

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John FortesPro Member
Multi-Family Syndicator · Abington, MA · Member since 2017 · 603 posts · 347 votes
7y
Hi @Vu Nguyen @Vu Nguyen I'm sorry to hear about your tax issues. If you were to invest in a syndication you would receive a K1 at the end of the year. Pending on different processes such as a cost seg or such, that will help with tax savings. As it won't help with your W2 it certainly will effect your passive income the more you keep investing.

If you decide to get a building yourself, all depends on the capital you threw into it and how much you can accelerate the depreciation of the building through a cost seg analysis. All depends on what you do.

End of the day, consult with your CPA and see what the tax savings will afford you. They may have a good idea for you.

Happy investing!
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Nick B.
Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
7y
DISCLAIMER: I am not a CPA but this is what I know/understand about depreciation and income:

Depreciation first applies to passive rental income.
If there is anything left, the reminder (up to $25K) applies to ordinary income (W-2, interest, dividends, etc.) provided that the ordinary income is below $100K.
If other income is between $100K and $150K, excess depreciation gets gradually reduced and does not apply if the income is above $150K.
The remaining depreciation (if any) accumulates and gets fully deducted from any income upon the sale of the property.

The "$100-$150K" rule does not apply to real estate professionals.

As far as the source if depreciation, it does not matter if you are a sole owner of a property or an investor in a syndication. Either way you get your share of depreciation (100% in the case of sole ownership and whatever %% of ownership you have in a syndication).

For example - non-real estate professional:
- W-2 income : $90K
- Rental income: $10K
- Depreciation: -$40K
- Net rental income (loss): -$30K
- Net income: $90K-$25K (max limit)=$65K
- Excess depreciation: $5K - carry over to the next year
If income goes above $150K, the entire $30K passive loss becomes suspended until the property is sold.

Ask a CPA for more details and explanations
4 Reply
Lee RipmaPro Member
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
7y
@Nick B.
knows what he is talking about! I’m also not a CPA but I have been though a similar journey and have really reduced my AGI by buying rental properies and doing cost segs. This year I went to RE professional and really got my AGI down (100% legal and allowed).
W2 income is primarily what you’re trying to offset so review Nick’s email and see how it applies. I also have a blog post that explains passive losses if you want to check that out. I was pretty blown away when I discovered this and try to show others how to do it as well (not tax or legal advice, do your own research!)
Podcast Guest on Show #373
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Jason Graves
Rental Property Investor · San Diego, CA · Member since 2018 · 242 posts · 234 votes
7y
@Lee Ripma
How do we find your blog post?
0 Reply
Lee RipmaPro Member
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
7y
@Jason Graves
There is a link in my signature to my website and it easy to find on there. I can’t post a link in the forum!
Podcast Guest on Show #373
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Natalie KolodijBusiness Member
Moderator
Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
7y
Originally posted by @Nick B.:
DISCLAIMER: I am not a CPA but this is what I know/understand about depreciation and income:

Depreciation first applies to passive rental income.
If there is anything left, the reminder (up to $25K) applies to ordinary income (W-2, interest, dividends, etc.) provided that the ordinary income is below $100K.
If other income is between $100K and $150K, excess depreciation gets gradually reduced and does not apply if the income is above $150K.
The remaining depreciation (if any) accumulates and gets fully deducted from any income upon the sale of the property.

The "$100-$150K" rule does not apply to real estate professionals.

As far as the source if depreciation, it does not matter if you are a sole owner of a property or an investor in a syndication. Either way you get your share of depreciation (100% in the case of sole ownership and whatever %% of ownership you have in a syndication).

For example - non-real estate professional:

W-2 income : $90K
Rental income: $10K
Depreciation: -$40K
Net rental income (loss): -$30K
Net income: $90K-$25K (max limit)=$65K
Excess depreciation: $5K - carry over to the next year

If income goes above $150K, the entire $30K passive loss becomes suspended until the property is sold.

Ask a CPA for more details and explanations
While depreciation is what we hope to have get your rental to a loss on paper (even if it makes money) I think thinking of the "depreciation" as a carryover item isn't really correct. The passive loss is what carries forward.

It's not excess depreciation carrying forward - It's a $5k passive loss carry forward. And it will carry forward until you either have passive income to utilize it against, or until the property is sold when those losses are freed up.
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Kolodij Tax & Consulting
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