All Forum Posts by: Michael Plaks

Quote from @Vidyadhar R.:

I have two rentals (both in-state, one local) and a primary residence. I’m a full-time W2 earner. My wife is a stay-at-home mom but handles leasing, tenant issues, repairs—basically runs the rentals.

We’re exploring if she can qualify for Real Estate Professional Status to offset my W2 income. Has anyone successfully done this? Any tips on tracking hours and proving material participation?

Appreciate any insight—thanks!

This approach is very common and completely legitimate.

The trick is in the time requirement. Sparing the technical details shared by my colleagues on this thread, your wife will need to spend - and document! - 750 hours per year of HANDS-ON real estate work.

Hand-on means doing some tasks for which you would pay other people. Example: negotiating a lease, hiring a plumber or doing painting with her own hands counts. Reading Bigger Pockets forum or listening to real estate podcasts does not count.

With this in mind, does your wife spend 15 hours each week on hands-on real estate tasks? I strongly doubt so when you only have two properties, both with long-term leases.

Quote from @Lauren L.:

We’re finishing up a new construction duplex (construction-to-perm, one-time close loan) and expect to receive our certificate of occupancy next week. The land was purchased in 2024, and we signed the contract with the builder in 2024. However, the building itself will be placed in service in July 2025.

Now that 100% bonus depreciation is back under the OBBBA starting January 2025, I’m wondering:
Is this property eligible for 100% bonus depreciation, even though the land purchase and construction contract were from 2024? Or does eligibility hinge solely on the placed-in-service date?

Before we start with math, the first question is whether you can even benefit from more depreciation. Not everybody can:
https://www.biggerpockets.com/forums/51/topics/1121063-expla...

Assuming that you can use more depreciation, here is a very generic snapshot of how your situation might turn out:
- land: not depreciable at all
- land improvements (fences, driveways, landscaping): 40% bonus
- personal property (appliances, carpets, cabinets): 100% Section 179 or 40% bonus
- the building itself: no bonus, slow depreciation

In order to break out the components I mentioned, you will normally need either a cost segregation study or a detailed breakdown from your builder, plus someone qualified to do the sorting.  https://www.biggerpockets.com/forums/51/topics/1075919-five-...

Sorry, this stuff is not simple.

I have written a detailed explanation of how 100% depreciation works under the new law:
https://www.biggerpockets.com/forums/51/topics/1249780-expla...

The original post o this thread correctly states that you can write off appliances, yet incorrectly claims that you can write off roofs and HVAC. Roofs and HVAC are only allowed on NON-residential properties, such as office buildings, storage facilities, retail stores etc. Not on houses and not on apartment buildings. 

And remember about the 1/19/2025 hard cutoff.

Quote from @Christopher Mooney:

Finally to the point in life where I realize I need someone savvy with taxes on my team. Would you all recommend I What start with a tax strategist or a good accountant? Should I look for someone who can do both?

Basically looking for ways to offset W2 income tax with real estate, as well as understanding how to most optimally draw money from real estate cash flow with the least tax impact. 

Hi Christopher, 

Now when your post has been moved to Classifieds, we tax professionals are allowed to offer: we can help.

Since you apparently have a high-paying full-time W2 job, you options might be limited. The one STR you have may bring you substantial tax savings, but they are typically for ONE year. Your other long-term rentals cannot really help you if your W2 is above $150k.

There may be limited relief from your LTRs in the year when you milk your STR if it drops your overall income below $150k. Or if it's already below $150k, you may also get a bit of help from your LTRs but not too much.

Your other options are case by case, depending on what else you do business-wise and investment-wise.

If you contact my firm, we can look at your last tax returns at no charge and have a better picture of where you are.

Meanwhile, please read these posts:
https://www.biggerpockets.com/forums/51/topics/1122635-the-s...
https://www.biggerpockets.com/forums/51/topics/1249780-expla...
https://www.biggerpockets.com/forums/51/topics/1222774-expla...

Quote from @Kevin Aumack:

Quote from @Michael Plaks:

Quote from @Abhishek Joshi:

I wanted to seek help on "proactive" tax planning from qualified professionals . Our family profile is W2 wages , and a few LTR properties. FWIW, we have been breaking even on those properties more or less over the past decade. How could we plan better, particularly as W2 income earners, so that we could legally save on our tax obligations with some smarter planning. I thank you for taking the time for reading my post, and for your inputs on the same. 

I'm going to tell you something you don't want to hear, because there will be plenty of people FALSELY promising you what you want to hear.

Two full-time W2 people with long-term rentals are basically limited to breaking even where you already are. No extra depreciation, cost segregation blah blah blah is going to help. 

In order to overcome those limitations, you would have to either drastically change your business model to short-term rentals (which sometimes may not be feasible at all or may be detrimental to your business) or drastically change your lifestyle (such as one of you quitting your W2 job and becoming a full-time investor.)  

If you are willing to explore those drastic changes - sure, an experienced tax professional like myself and my colleagues on this forum can help.

But if you're hoping that somebody will teach you "secrets" of how to reduce your taxes in your CURRENT (W2/LTR) situation - there're none, outside of general tax planning like maximizing your retirement contributions etc.

 Hey Michael, the information the other accountants have provided are not false at all. They are legitimate tax strategies, as you mentioned, that would require changes to what is currently being done to a more tax advantageous plan. I think that's what any person would want to hear, are the options that are available, whether or not they are put into play is a different ballgame. Becoming an active participant in a short term rental really wouldn't require any significant changes in lifestyle, I'm doing it right now without the use of a property manager which would alleviate even more of any hassle. 

You and I are saying the same thing 

Quote from @Abhishek Joshi:

I wanted to seek help on "proactive" tax planning from qualified professionals . Our family profile is W2 wages , and a few LTR properties. FWIW, we have been breaking even on those properties more or less over the past decade. How could we plan better, particularly as W2 income earners, so that we could legally save on our tax obligations with some smarter planning. I thank you for taking the time for reading my post, and for your inputs on the same. 

I'm going to tell you something you don't want to hear, because there will be plenty of people FALSELY promising you what you want to hear.

Two full-time W2 people with long-term rentals are basically limited to breaking even where you already are. No extra depreciation, cost segregation blah blah blah is going to help. 

In order to overcome those limitations, you would have to either drastically change your business model to short-term rentals (which sometimes may not be feasible at all or may be detrimental to your business) or drastically change your lifestyle (such as one of you quitting your W2 job and becoming a full-time investor.)  

If you are willing to explore those drastic changes - sure, an experienced tax professional like myself and my colleagues on this forum can help.

But if you're hoping that somebody will teach you "secrets" of how to reduce your taxes in your CURRENT (W2/LTR) situation - there're none, outside of general tax planning like maximizing your retirement contributions etc.

Quote from @Les Jean-Pierre:

Hi, I just inherited a property. I will do a cost segregation. But, I will also put some money into it to fix it up. Should I do the cost seg first? Or does it matter? I am aware of 100% Bonus Depreciation. Thanks!

First, make sure that you can actually use the additional depreciation from cost segregation. 
https://www.biggerpockets.com/forums/51/topics/1075919-five-...

If you do have room for more depreciation, then cost segregation should probably be done before rehab. The rehab costs are already precise and can be separated by type of property. Of course, separating takes knowledge and skill, so sometimes a post-rehab cost segregation makes sense.

1. Yes, it is 100% again!

If you buy a new property today, you can - again! - immediately write off 100% of a qualified portion of your purchase. It used to be 100% through 2022, but then was reduced to 80% for 2023, 60% for 2024 and 40% for 2025. We are now back to 100%, yay!

It is great news, especially for investors qualifying for REPS or STR - see below.

2. But not the entire purchase price, only a portion!

This is not new, just a reminder. You could never write off the entire cost of a property, although I have seen many tax returns where it was claimed, even by some so-called professionals. 

What you can write off is the portion which qualifies for a shorter depreciation period. It is basically "personal property" such as appliances, carpets and cabinetry, as well as "land improvements" such as fences, driveways and landscaping. To identify these items, you usually need a cost segregation study: https://www.biggerpockets.com/forums/51/topics/1075919-five-...

3. And you still need to qualify for an additional depreciation deduction

For most rentals, you only have a limited deduction. This extra bonus depreciation will not help you if you run into these limitations known as PAL - passive activity loss limitations: https://www.biggerpockets.com/forums/51/topics/1121063-expla...

There are two main ways to defeat these restrictions: either qualify for the Real Estate Professional Status (REPS) or qualify for the Short-term Rental (STR) loophole: https://www.biggerpockets.com/forums/51/topics/1122635-the-s...

REPS and STR are not new, and you must actually qualify, it is not merely checking some box in your tax software.

4. For properties bought prior to Trump's inauguration you're SOL, sorry

Now, some bad news. The new law only applies to properties purchased after January 19, 2025. 

If you placed a property in service in 2023, you're stuck with 80%. If you placed a property in service in 2024, you're stuck with 60%. You cannot go back and amend your old returns or "catch up" in some other fashion. And, if you bought a property before January 19, you're stuck with 40%, even if you have not placed it in service yet!

To be clear, again: you cannot delay placing a property in service until after 1/19 hoping to qualify for 100%. Nope, the language of the law is very black and white: the property must be acquired after 1/19, and "acquired" means a signed binding contract.

5. No, you cannot "upgrade" an existing rental to 100% bonus by doing cost segregation today

This gotcha was actually covered by the previous section, but it is worth a separate emphasis. The date of cost segregation study does not matter! Cost segregation applies retroactively to the date the property was placed in service initially.

Even if you do cost segregation today and will be claiming extra depreciation catch-up on your 2025 tax return with a Form 3115 - the calculations must be done under the rule effective at the time you placed the property in service. So if it was placed in service in 2024 - your bonus stays at 60%, even if your cost segregation is applied to your 2025 return.

6. No, you cannot play funny games with entities.

Tomorrow, there will be YouTube and TikTok videos "teaching" you to create an entity and "purchase" existing properties from yourself to get around the 1/19 date rule. I know who you are.

Nice try, influencers. No cigar. Go home (where y'all stay anyway) and read about related party transactions.

7. Ask your tax professional about Section 179.

This remains a feasible Plan B for properties stuck with 80/60/40% bonus.

Quote from @Rick Rajeesh:

I'm completely new to real estate investing. I'm a physician with W-2 income and have been doing my own taxes for years, but as I'm reading more about real estate and tax advantages, I feel like having a CPA for advice and tax preparation will be necessary for me going forward. How do I go about finding a good CPA (I'll be mostly investing in Houston - does it matter to have someone local)? I've also read some articles/posts where people recommend having a CPA for your real estate and a CPA for all your other matters. Seems overkill to have two. Is it realistic to find one person to handle my situation? Thanks!

Hi Rick, as other people said, there is no need for two CPAs. My Houston-based firm works with a lot of people in your situation, handling both real estate and personal. But I cannot type "please reach out to me" like other people did, because it is a direct violation of Bigger Pockets rules. All business contacts must be initiated from your end.

Here is my post on finding a real-estate focused tax accountant:
https://www.biggerpockets.com/forums/51/topics/1222774-expla...

Thanks for the shout-out, @Daniel Hyman 

Quote from @Todd Lawrence:

Would buying a rental this year with 100% bonus depreciation would offset the gains from the sale of a rental?

my tax professional told me that it will not help reduce the 400k of realized gains I’ll have next year because of a recent sale.

It would not offset it but it would help.

100% bonus depreciation does not apply to your entire purchase. It only applies to some parts of the property that have shorter depreciation period than the building. This part might be 20-25% of your total purchase but not 100%.

And identifying these portions normally requires performing a cost segregation study:
https://www.biggerpockets.com/forums/51/topics/1075919-five-...