Cost Segregation to Reduce High Taxable Income

[Danielle Davis]

My husband and I are both doctors and have high six figure income from our practices. However, most of our income comes from managing other doctors working for us rather than us personally working clinically in our offices (AKA much of this income is passive profit distributions at this point).

We pay an insane amount of taxes and are trying to figure out creative strategies to lessen our tax burden. We have 2 under 2 and recently sold a large portion of our practices so we expect our income from that to be reduced significantly in the next year or two. My husband has another venture that will likely be $1M plus in income/distributions/year while I was considering starting to do some real estate. Our thought is that I would be a real estate professional and purchase assets we can depreciate in year 1 to offset the high taxable income from my husband. 

My questions are: do I need to have a real estate license to be considered a real estate professional? Does it matter if I still have six figures of income from my practice? (We would put all the real estate in my name). There seems to be a great deal of conflicting information regarding REP status.  Any unforeseen problems with this tax strategy? TIA!

[Jeff Nash]

Having a real estate license is not necessary to be considered a REP.  You have to track the hours your spend on various real estate activities (development or redevelopment, construction or reconstruction, acquisition or conversion, rental, management or operation, leasing and / or brokerage) and they have to be more than 750 hours and it has to be more than 50% of all your business activities.  It’s an annual qualification so you want to maintain it. You can just qualify yourself as well.  My recommendation would be to work with a tax advisor. It seems there are opportunities to plan better in your situation.