Moving highly taxed business profits into real estate?

[Jess O.]

So I'm beginning my real estate journey, and I'm curious about something. I own a highly-profitable online business, and I often see people talking about "moving highly taxed business profits into real estate," and I'd like to start by learning more about this as I don't understand how it's possible. My business makes a lot of money, but if I just started buying real estate with the profits none of that is tax deductible to my business, so I don't understand how that would help. Can someone shed some light on this, or point in the right direction (articles, courses, books, etc.)? Thanks!

[Natalie Kolodij]

Originally posted by @Jason Bott:

@Jess O. here's the way my CPA laid it out for, (I might have the terminology wrong, but you should get the idea).

If your online business is considered Active income, you need Active losses to offset you Active income taxes.

Real Estate that provides Passive income/losses can not offset the Active income.

For your Real Estate to be considered Active income, you need to work in the business 20 hours per week or more.

So the key to reducing taxes is to have both active or passive income.

Again, that's the general premise, a CPA could give you a refined answer that you could act on.

While REI pro i s a great option

There are several tests to meet along side the 700 hours annually. The big one is you need to spend more time doing real estate than any other activities.

So if you're spending 2500 hours a year running a profitable business- you would need to show that you spent > 2500 in real estate as well.