W-2 Income and Depreciation Offset - HIGHLY UNLIKELY

[Eric Williams]

It makes sense to want depreciation to offset ordinary income.

Here's the kicker:

You need to establish that you are real estate professional. Then you establish material participation.

There are two tests to a real estate professional, a key one being:

More than one-half of the personal services performed in trades or businesses by the taxpayer during the tax year are performed in real property trades or businesses in which the taxpayer materially participates Sec. 469(c)(7)(B):

What that means is if you have a W-2 job, then you have to spend more time on real estate than your regular job. That's more than 80 hours a week (possibly).

From an actual case:

"Other than petitioner's general testimony that he spent more time performing services for petitioners' rental real estate activity than he did for Georgia First, petitioners did not present any evidence (such as time logs) or estimates of the total time petitioner spent performing services for Georgia First from which we can determine with any degree of certainty how many hours he dedicated to Georgia First during the years in issue. Because petitioners have failed to establish how many hours petitioner spent performing services for Georgia First, petitioners have failed to establish that petitioner spent more time on petitioners' rental real estate activity during the years in issue than he did for Georgia First

That bold part is saying that he lost because even though he knew his W-2 hours, he still failed to prove he spent more hours on the real estate activity. 

Remember, the burden of proof is on the taxpayer (Welch v Helvering).

[Nicholas L.]

at 100K or below though you still get up to 25K in passive losses...