Tax Strategy for Married Filing Joint High Income Earners!

[Franky Davis]

Hello everyone, I hope you all are doing well and starting off the 2022 year right. I wanted to start a line of communication for this specific investor category. Specifically, for high income earners (1099/W2) who have a spouse who is either a home-maker or works <750hrs/year in his/her job. With this scenario, it is possible to take passive loss from this high income salary utilizing depreciation through your spouse’s real estate professional status! I’m sure this is well known on the forum. However, I wanted to spawn some discussion. I’m an orthopedic surgeon. My wife is a special ed teacher. However, this year, she has taken the year off to assist in our move to a new location and focus on getting our kids settled and plugged in. We have several investment properties and made a moderate amount of purchases in 2021/early this month. Because of our arrangement, she has been able to document her work ours as greater than 750/year and greater than the hours contributed to her primary profession. That is what it takes to qualify for REAL ESTATE PROFESSIONAL status. She doesn’t have to be an agent or broker. She doesn’t have to have her license. Plus, this has allowed us to perform cost segregation studies on our properties and utilize accelerated depreciation schedules to drastically decrease my tax burden. It essentially allows me to take money that would be given to Uncle Sam (>40%) and contribute that money as a down payment for a property that will subsequently be used for this same strategy. Thanks everyone and thanks to this community for providing like minded folks who are trying to achieve financial freedom. Because of you, we are well on our way. I’d love to give back and help others achieve the same.

[Yonah Weiss]

@Franky Davis thank you for bringing this topic some more light. I think there are many out there who are in your situation that don't know the rules, and are missing out on the opportunity. 

One important thing to note, the real estate professional status (REPS), is established on a year-by-year basis, so make sure you are properly tracking your hours to establish your ability to qualify, if ever challenged in an audit.