Is Real Estate the best way to reduce your taxes?

[Tim Johnson]

Real Estate is THE BEST way to decrease/eliminate your tax burden.

Here's why:

This is a picture of a Schedule E.

It outlines profit and losses from rental real estate.

Look at all of the losses you can count against your rental income.

Now look at line 18.

Line 18 is usually:

(Value of your property) - (Land value) / 27.5 years.

For example:

($650k) property value - ($150k) Land value = $500k / 27.5 years.

That's $18k in losses you can deduct against your rental income.

Now add that with lines 5-17 and you will most likely show a loss on paper.

***EVEN IF YOU CASHFLOW IN REAL LIFE***

Ready for the boatload of cherries on top?

- Run a cost segregation study on this property in 2024 and you might have $100k on line 18...

Without diving too deep on this post - If you run this scenario as a real estate professional while materially participating in the property, You'll be able to reduce your's and your spouses taxable income that year... 

P.S. - When you go to qualify for your next proeprty, your lender can actually add losses from line 18 back into your income... allowing you to qualify for the next property. (Have your Cake and eat it too!)

[Account Closed]

I would say yes! But many people need to consider if they are financially ready for it or not. Lots of people either rush in to quick or don't ever get in the game. Find out what financial problem you are trying to solve in the short term until your able to get to more "long term" problems that real estate helps with 

[Aus Smith]

Hey All, 

one important aspect to consider about real estate developing paper losses. Under the PAL limitation, only passive losses can offset passive income. If you are using STR, REPS, or self rental with material participation to convert to active or nonpassive income, you do not have to do this if you have passive business invesment that produce passive income that will exceed the loss generated by depreciation. Also, if your AGI is below a certain threshold, you can offset 25k against ordinary income. It is important to keep this in mind as it might not be neccesary to go through these gyration to only find out you could take the losses regardless.

Tax planning is the key! As they say, do not let the tax tail wag the dog. 

Awesome conversation! 

Austin L smith, CPA.

 

[Malik Javed]

Incurring losses every year will mean that the losses will be suspended and carried forward and will offset future passive income. Depending on the situation, a taxpayer could offset some of the passive losses with active income. Taxpayers should be aware of the criteria for this specific scenario. This deals with short-term rentals vs. long-term rentals.

[Michael Quarles]

The absolute best way to avoid taxes is not earn income.  Or at least report it.  

No real estate needed.  

In fact, come to the USA and live off of those of us who pay taxes.  Free healthcare free cell phones free housing.