Deducting business-like expenses for REI while having a W-2 job?

Deducting business-like expenses for REI while having a W-2 job?

Rental Property Investor · MA · Member since 2020 · 7 posts · 0 votes

Summary: For those with a W-2 job but that own 1 or 2 rental properties, are there any expenses that you declare that aren't to one specific property, but are meant to support / grow your real estate investing in general?


A bit more of an explanation...

I've been reading a bit about taxes lately ("The Book on Tax Strategies" by Amanda Han and Matthew MacFarland was a surprisingly interesting read), but one part that I'm a bit confused on is when one can begin to take advantage of the non-obvious deductions for rental properties. 

I have a W-2 job but am currently closing on my first property in the next month and plan to add 1 or 2 more to my portfolio by the end of this year. All properties will be out-of-state. 

Besides the standard deductions like depreciation and mortgage interest, there are other more business-like expenses that contribute to the growth of one's real estate portfolio. Some examples:

  • Using a home office for communications with my property manager, agent, etc.
  • Attending a real estate conference or training

I've been reading on various forums that REI at this level (just owning a few properties on the side but having a W-2 job) is considered an investment and not a business, so the types of deductions mentioned above wouldn't apply. But others seem to say the opposite.

Does anyone who owns a few properties (not in any business entity) while having a W-2 job take advantage of deductions like the ones mentioned above? 

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    5y
    Originally posted by @Reece Teramoto:

    Summary: For those with a W-2 job but that own 1 or 2 rental properties, are there any expenses that you declare that aren't to one specific property, but are meant to support / grow your real estate investing in general?


    A bit more of an explanation...

    I've been reading a bit about taxes lately ("The Book on Tax Strategies" by Amanda Han and Matthew MacFarland was a surprisingly interesting read), but one part that I'm a bit confused on is when one can begin to take advantage of the non-obvious deductions for rental properties. 

    I have a W-2 job but am currently closing on my first property in the next month and plan to add 1 or 2 more to my portfolio by the end of this year. All properties will be out-of-state. 

    Besides the standard deductions like depreciation and mortgage interest, there are other more business-like expenses that contribute to the growth of one's real estate portfolio. Some examples:

    • Using a home office for communications with my property manager, agent, etc.
    • Attending a real estate conference or training

    I've been reading on various forums that REI at this level (just owning a few properties on the side but having a W-2 job) is considered an investment and not a business, so the types of deductions mentioned above wouldn't apply. But others seem to say the opposite.

    Does anyone who owns a few properties (not in any business entity) while having a W-2 job take advantage of deductions like the ones mentioned above? 

     Yes, it can done. Some the expense might be not deducted right way, but definitely can be deducted over time. 

    As you grow, more of the expenses will be available as you portfolio might rise to trade or business. 

    To deduct home office you have to do little trick and pay yourself an management fees and use SCH C. Your tax advisor should be able to help. 

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