All Forum Posts by: Alfredo Cardenas

Hello, Anyone has experience using REPS status via their wife or husband to offset W-2?  

MY 2024 W-2 will be more than $300K and this year (2024) I married a real state agent. I have been reading a lot and educating myself on the REPS scenario for me to use the real state losses in 2024 to offset my 2024 W-2 income. I believe my wife and I pass all the tests under REPS and material participation (adding our time spend of our rental together). I understand that I can not use any prior rental looses losses to offset W-2 in 2024 ( i am using those prior year losses to offset capital gains of 3 homes i sold in this year/2024). BUT, I believe I can do a cost seg and bonus depreciation on the 3 remaining (the ones that I did not sell this year) rentals in 2024 to use those losses to offset my 2024 W-2 via REPS. Is this correct?

Questions:

1- Does the above strategy sound correct or am i am missing something? If this is right, I can save a very significant amount on taxes. 

2- what is the  estimate percentage of people with high W-2s that get audited my claiming REPS via their wife REPS status to offset W-2? Is it almost everyone? 

3- Does anyone have an example of a time log for the material participation test? 

Thank you. Here is another question for the group. I had 6 properties. This year, I sold 3 of my rental properties (one has a large capital, one at a loss (because I bought it at the top of the market), and the other one breaks even). I plan to use my $200K losses carrying as a group from prior years to offset the any gains from the sale of these 3 properties. That leaves me 3 properties in 2024. 

Here is where it gets interesting. MY 2024 W-2 will be more than $300K and this year I married a real state agent. I have been reading a lot and educating myself on the REPS scenario for me to use the real state losses in 2024 to offset my 2024 W-2. I believe my wife and I pass all the test under REPS and material participation. I understand that I can not use any prior losses (whatever remains after the offset of the capital gain of selling 3 homes) to offset W-2 this year. BUT, I can do a cost seg and bonus depreciation on the 3 remaining rental in 2024 to use those losses to offset my W-2 via REPS. 

Questions: 

1- Does the above strategy sound correct or am i am missing something? 

2- what is the percentage of people that get audited my claiming REPS status to offset W-2? Is it almost everyone?

3- If Audited, they will ask me for a time log of all rental activities to see if we meet the hours required and one or a a couple. I dont have one so I will need to create one from scratch for 2024. Where can I find an example of a material participation log? 

4- The more I learn about REPS and its complexities (mostly in the material participation part and the time log part), the more I get discourage to use the above strategy to offset my W-2. BUT, we are talking about a huge offset of my W-2 so this is why I posted this to see what everyone experience is regarding using REPS to offset W-2. 

Thank you

Now that understand that part, now I need to figure out 1250 recapture rules, for an add back of previously deducted depreciation.

I cant figure out how to find, on my tax returns, the total depreciation over the years up to 2023 on each property. I need to deduct the total depreciation from my Cost basis for the property being sold to figure out how much is subject to capital gains and how much is subject to 25% depreciation recapture. I also cant find total basis on 2023 for that property

Thanks Michael. Very Helpful!! I saw exactly what you are talking about in a youtube video but wanted to get a second opinion. I think I know who the new CPA i will be..LOL. There is no telling how much money I have lost over the years for not having the right CPA that can think and strategize. 

What do you think about my other strategy of doing seg study and bonus depreciation on all my rentals for the year 2023 (have not filed it yet) to do the following:

1- To get a bigger loss carried forward to 2024 to offset the sale of 3 properties instead of 2 in 2024. 

2- Or, Since I married a realtor this year 2024 (and we passed the IRS active participation test together), I can activate that loophole, use whatever loss (bigger lost if we can use the seg study) is left over from the sale of the property to offset my high  W-2 wages (way over the $150K threshold) in 2024. 

Oh, is that why he is saying that he can only use the losses being carried over of the one property for sale and not all portfolio losses combined to offset the capital gain because that property will no longer be in service (providing income) "sale of the asset"

Yes. I am aware of that. here is an example of my question to better explain it:

John has paper losses in the following 3 properties carrying over from 2023:

Property A: -$100K

Property B: -$120K

Property C: -$80K

Total portfolio Loss (combined) from 2023: -$300K
In 2024, John sells Property A for $500K (with no debt). John's CPA is telling him that he can only offset the capital gain of the sale of property A of $500K by $100K and not by $300K (entire rental portfolio combined). What do you think? My CPA got upset when I told him that he was wrong.

Also, lets say that John does a Cost Seg (bonus depreciation) on all homes in 2023 to increase the loss on all properties combined from $300K to $600K(for example). Then, use that $600K to offset the $500k sale of property A in 2024, and then have $100K in losses carrying forward to 2025.  My CPA also say no to this scenario. What do you think? 

Ok. So, I am in need of a tax pro specializing in real estate and business. Where do I go in here to find one? anyone that you can recommend in the Florida market.

Thanks.  

I am not sure why he is so sure about me not able to use all my past losses combined to offset the sale of 1 or 2 properties. He comes from a large CPA firm and they have lots of rental investors. I am starting to believe that I need to learn the tax laws myself since I have lost so much money paying unnecessary taxes because my previous CPA's are not familiar with all laws or they just plug numbers into a software (without strategizing) and then I get hit with huge tax bills that could have been legally avoided. I am a high wage earner (w-2).  Does that have to do with it? what other story or scenario can make it where I cant use all combined losses? 

Here is another question that he also said that is not possible. I just got married to a realtor (i can claim real state professional status in 2024 via my wife). I asked him if we can use that large combined losses being carried over to this year to offset my 2024 W-2 given that we can activate the real state profesional status this year to offset W-2 income without limitations. He also said no. He said that we can not use past rental losses to offset 2024 W-2 wages using the real state professional status (we pass all the IRS real state professional test) since we got married this year and not last year. 

My CPA is telling me that I cannot use the sum of all my rental properties losses grouped together as one large loss to offset capital gains of the sale of 2 of those properties. He is saying that I can on only use the losses of each property again the capital gain of each property. Is he correct? Please advise