Real Estate Professional Tax Strategies for Real Estate Agents

[Steven May]

Hey There - quick question. I went full time real estate agent this year and did about 5.2 million in volume in 2021. I know there is a hefty tax bill waiting for me  with this 1099 commission but I also know that I am classified as a Real Estate Professional based off the guidelines of this being my main job, actively managing my 4 SFHs and my self storage facility for over 500 hours, and so on. I also have a small W2 this year as I am a PRN Registered Nurse. 

My concern is lenders & getting loans in 2022 for more purchases. I am already running into issues on a cash out refinance on one of my rentals as I now am a Non-QM loan candidate. My question is, can I utilize all of my real estate losses against my active 1099 commission to lower my tax bill significantly or will that hurt me in the lenders eyes? 

This will be my second year 1099 and the amounts are quite different (15k first year & 100k second year) so I am under the assumption they take the average of the 2 years 1099s and 2 years Ws for my personal sake. 

Is it better just to take the tax bill so on my tax return it shows I made quite a bit more rather than writing off so much that it shows I made much less? This is all for lending purposes as I plan to continue to buy. 

Any advice is appreciated from CPAs and Loan Officers - thanks!

[Lien Vuong]

There's definitely ways where you can properly write off expenses in your business, minimizing the tax liability but you're able to add it back into the income because they were deductions. I would engage with a CPA ( you can PM me for mine) and a loan officer to review everything before you submit to fully vet the tax return before you file. This is a very common scenario with 1099 professionals.