Real estate tax benefits for high income earners

[Zk Lani]

Hello BP community. Are there any real estate tax benefits for W2 high income earners (over $250k)? I've read several books/posts/blogs on tax benefits for RE investors, and even contacted a couple of CPAs who are active here on BP (even read their book), and besides poor communication skills, I was told that they couldn't help me due to my high income and one of them referred me to a "larger " practice but didn't explain how that larger practice could help me! Anyways, I read Garrett Sutton's and Tom Wheeler's books on RE tax benefits, and it seems like I need to get my wife to become a full time real estate professional. I am finally starting to get her on board with me, she wasn't happy about me investing in rentals and thought it was too risky. Anyway, I started investing 6 months ago, but spent a year before that educating myself on rental property investing. I currently own 4 units and working with my CPA to create a pathway for my wife to become a real estate professional. Now I understand it needs to be 750 hours/year, but is there a practical number of units that I need to own that could justify the hours requirements? My wife is currently doing my bookkeeping (she's Very organized!) and I do have a property manager. My CPA recommended that I put my wife as the contact person in my property management contract, where the manager would inform my wife and communicate with her about any issues. My CPA also suggested that my wife should become an equal owner of my single member LLC. My CPA is not an expert in real estate taxes, but very open minded and eager to learn. I talked to other CPAs who work with local investors and was told as a W2 employee, there aren't many benefits, and for my wife to become a full time professional, I need at least 10-20 units to justify the hours incase I get audited by the IRS.

I’d like to ask if there are any W2 high income earners here or CPAs who work with W2 high income RE investors that can provide me further guidance. I enjoy real estate investing and hoping to buy a couple of properties this year.

Thanks and look forward to learning from you guys and girls.

ZK

[Eamonn McElroy]

@Zk Lani

"My CPA also suggested that my wife should become an equal owner of my single member LLC."

Why?

Qualifying your wife as an RE professional might be extremely tax advantageous.  750 hours is just one of two prongs however...and qualifying as a real estate professional merely opens the door.  Your wife still has to meet material participation regarding your rentals.

Your CPA is best equipped to advise you as he/she knows all of your facts, circumstances, and goals.

"I talked to other CPAs who work with local investors and was told as a W2 employee, there aren't many benefits, and for my wife to become a full time professional, I need at least 10-20 units to justify the hours incase I get audited by the IRS."

Number of rentals is irrelevant.  Nowhere in the IRC, regulations, rev procs, revenue rulings, or court cases does it mention you "need at least 10-20 units to justify the hours".  These CPAs don't have a good grasp of the passive activity loss rules and are doing their clients a disservice.  What matters is meeting the two prong test as a real estate professional, documenting that for substantiation purposes, and determining if material participation can be met.