Best way to take advantage of tax losses when you make over 150.

[Johnny Smith]

So i am hearing from a CPA that because my wife and I make over 150k per year, that I cant really take advantage of tax losses from my rental property. I can carry them forward, but it doesn't reduce my actual gross income. Apparently, even though i spend quite a bit of my actual time on this, because i get a w2 its considered passive income. Any advice on this? Whats the best way to reduce my tax bill? 

For context, I have a full time job as does my wife. I currently have one rental property that I bought this year, spent a large amount of time renovating it, and its now rented. It is a duplex and both units are currently rented. 

[Ashish Acharya]

@Johnny Smith With an AGI over $150,000, Passive Activity Losses (PALs) from rentals are limited, meaning you can only carry them forward without offsetting your W2 income. However, if you or your spouse can meet the Real Estate Professional Status (REPS) requirements by working over your w2 hours in real estate and materially participating, the rental losses could offset your active income. This may be challenging with both of you in full-time W2 jobs, but worth considering if one of you can transition to real estate part-time.

Alternatively, the Short-Term Rental (STR) loophole offers another path. STR income isn't considered passive if you meet material participation rules, allowing STR losses to offset W2 income. STRs require more hands-on management, but it's a viable option for reducing your taxable income without needing REPS.

You might also consider a cost segregation study to accelerate depreciation on the rental, creating larger upfront paper losses. While these losses won’t immediately offset W2 income without REPS, they can be carried forward to offset future rental income or capital gains when you sell the property, lowering your tax burden long-term.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.