Non RE pro tax dedications?

[Alex Knight]

I am interested in becoming a real estate investor but have been advised by my CPA that as a non pro, the tax dedications such as depreciation, losses, etc. I do have a full time job and so does my spouse. The 750 hours per annum would not be the problem but the requirement of spending over 50% of work time in the real estate business is tough. Does anyone have any experience with this? Look forward to your comments or private message. Thank you.

[Michael Plaks]

Originally posted by @Alex Knight:

My understanding is that all itemization from mortgage interest, depreciation, expenses, etc are to be suspended until the sale of the property at which point they would be calculated against potential cap gains.

If that is the only case, how does it make sense for ‘higher’ income earners to invest in rental properties?

Because there are three, not one, reasons to invest in rentals, in that order:

1. Wealth building 
2. Cash flow
3. Tax benefits (a distant 3rd)

If you're strictly talking about tax benefits, you have them even when your losses are locked up, for example:

• You can have positive cash flow which is not taxed, due to depreciation
• You can refinance and pull out equity in cash without paying taxes
• You can upgrade to a bigger property without a taxable sale via a 1031 exchange