How to use real estate to reduce W2 taxes?

[Jorge Arias]

My wife and I make ~$500k/yr. I'm an software engineer on W2 and she started as real estate agent about 2yrs ago. We are looking for ways to reduce taxes on the W2. We currently do not own any rental properties. We did in the past, but sold it all at one point. We are 36 and 34.

What real estate strategy would you recommend us to aggressively reduce taxes?

[Account Closed]

Hey @Jorge Arias, 

There are two main ones: Real estate professional and short term rental loophole. I would advise you sync up with a real estate-focused accountant to discuss further. Please keep in mind the April 15th deadline is coming so folks are really busy! 

[Carl G. Moose]

Becoming a Key Principal (KP) in other people’s commercial real estate deals is a great way to shelter your income, participate in several deal at the same time, minimize / spread out risk, capture equity w/ a preferred double-digit return at a discount cash-out-of-pocket investment. 

Plus, when done correctly, you as the KP can capture the ALL the Fed investment Tax Credits (ITC) plus the  State, MARCS, and Cost Seg Depreciation to massively offset your High W2 / 1099 Income - I wrote a book specifically for people like you and your wife to address your concerns. 

[Basit Siddiqi]

Is real estate agent her full-time job?

If you guys get a couple of rentals, she should be able to claim real estate professional status which should be a way to lower your tax burden.

[Julio Gonzalez]

Is your wife able to claim real estate professional status? If so, you could buy rental properties and utilize cost segregation to reduce your current tax bill.

[Corby Goade]

Your wife is already a real estate professional, so you don't need to use the short term loophole. Buy a rental property and get with a real estate savvy CPA. You can cost seg the property against your W2 income and make a pretty significant impact. 

Something to consider- most people in your situation will make WAY more money through tax savings than they will through cash flow-so, take that in to consideration. It's much more important that you do a deal than wait for a GREAT deal, because those tax savings are what you really need. Not saying you should do a bad deal, just that literally any property will make a huge difference in your take home pay, I'd be analyzing them differently than you would if you needed the cash flow. Whole different ballgame. 

Great problem to have, congrats!