Tax Code 179 help understanding

[Syman Scarpellino]

Hi BP Community, 

I am a little hazy on tax code section 179. 

I am a reasonably high income earner (W2) and gaining momentum in the RE investing world. I am looking into getting my RE license and opening up a management company (mainly to manage my own properties) 

my fiancé is shifting out of her day job as a nurse and potentially acting as our management companies CEO for lack of better terms. 

If she drove a vehicle that weights the required 6000 lbs, and her “job” is managing investments, how will that impact my W2 taxes? 

My goal between deductions, taxes, improvements etc is to wipe out my 60-70k in taxes I usually pay, and achieve the illusive goal of not paying any taxes. Is that even possible for a W2 in my higher (relative) income range? 

[Joe Splitrock]

@Syman Scarpellino I don't have all your financial details, but assuming you are over $200K income, you will not be able to take passive loss against your W2 income. You would need to be a real estate professional or be married to a real estate professional. Getting your RE license and opening a management company doesn't make you a real estate professional. You would need to work 750 hours per year in a real estate profession and over half your working hours. It is impossible to qualify as a real estate professional when working a full time W2 that is non real estate professional. If you are working 40 hours a week, that is 2000 hours a year, so your real estate professional side hustle would need to be 2001 hours. Not humanly possible or at all believable by the IRS. It is even difficult to hit the 750 hour threshold, unless you are managing a sizeable portfolio.

If you were married and your wife didn't have her nursing job, she could potentially meet the 750 hour threshold. That is still working 15 hours a week managing rental properties. I am not sure the size of your portfolio, but IRS knows if you have a few houses, it doesn't take that kind of time. She would need to keep time logs to document her hours spent. Since she is just your fiancé, this isn't an option.

Since you are not married, she will have no effect on your taxes. If you are hiring her to manage your properties, you would generally pay her a management fee. That could help with your taxes, but not $60-70K per year. My guess is she (and you) can't justify purchasing a vehicle for 100% use in the rental. How many miles a year are you currently claiming for rental use on your personal vehicles? She will need to keep travel logs to show what percentage is business versus personal. 

There is a false narrative out here that real estate owners never pay taxes. That can be the case early on when depreciation and interest are heavy, but as your portfolio ages, it gets harder to claim losses. Even if you did expense a vehicle, that would have a short term effect on your taxes. It may help for a couple years and when you go to sell the vehicle, you would recapture that loss and owe taxes. That is not the case if you just claim mileage, which is why mileage can be better in many cases. Just be aware that depreciation and accelerated depreciation are tax deferrals and not tax avoidance.