Help with understanding appreciate

[Felicia West]

Hi there!  I’m a beginning investor and am trying to wrap my head around the tax benefits involved with real estate.  

My main question is regarding depreciation.  My husband and I are high wage earners, so from what I understand, you can’t claim depreciation against your W2 income after a certain income level, but can you still claim depreciation on income made from profits on a rental after you’ve surpassed the income limit or is that still phased out?

Would there be other tax benefits for high wage earners and what would those be?  What would we be able to write off?

Thank you for any info you can provide.

[Andrew Strauss]

Hi Felicia - For high-wage earners, the ability to use rental losses (including depreciation) to offset W2 income is limited. The IRS considers rental income "passive," and losses can only offset other passive income unless you qualify as a Real Estate Professional. If your modified adjusted gross income (MAGI) is over $150,000, you typically can’t use rental losses to offset W2 income.

But you can still use depreciation to offset the rental income itself. For example, if your rental generates $25,000 in income and you have $10,000 in depreciation, it can reduce your taxable rental income to $15,000.

Happy to discuss this further.