Using LLC to offset Rental income against Active income (W2/Capital gains)

[Ben Lee]

From my research, I understood that my rental property paper losses could offset my W2 income/capital gains if: (1) my AGI is under $150k, (2) the property is a short-term rental, or (3) I have a Real Estate Professional designation. I've recently learned that these conditions might not apply if the properties are held in an LLC, and there might be no limit on the amount of rental income paper losses used to offset W2 income/capital gains. Is this accurate?

[Michael Plaks]

Let me start by being an angry boomer: we should not apply the words "my research" and "I've learned" to reading a few random posts on Reddit or even on BiggerPockets. 

That said:

- there's a limited room ($25k) to offset W2 income with rental losses if your income is below $100k, and that room is being squeezed out between $100k and $150k of income

- there is an option to offset W2 income with STR losses under some specific conditions and for one year only

- there is an exception for REPS (real estate professional status) which you cannot qualify for if you have a regular full-time W2 job

- LLCs change absolutely nothing for the above rules

Each of these rules comes with an hour-long explanation of various conditions, exceptions, nuances and what-ifs - therefore you cannot make reliable conclusions without having an experienced tax accountant reviewing you specific situation. YMMV.