W2 Income Tax Deduction Strategies through Syndication

[Vu Nguyen]

Hi Guys! 

I am new to the Bigger Pockets Family.  But I am in great distress seeing how much taxes are deducted from my W2 income.  I need help with understanding how to reduce my taxable income strategically through syndication and/or apartment investing.  Here are my questions below.  Thank you so much for all your answers in advance!!!

1. If I were to syndicate an apartment with other investors.  How does the reduction in taxable income work?  Do I write off the whole depreciation to myself if I have other passive investors? or is it dispersed by all the investors? 

2. If I were to invest in an apartment property myself, how would the deductions work numbers-wise?  I am trying to understand numerically how I can reduce my taxable income legally through apartment investing.  

[Nick B.]

DISCLAIMER: I am not a CPA but this is what I know/understand about depreciation and income:

Depreciation first applies to passive rental income.
If there is anything left, the reminder (up to $25K) applies to ordinary income (W-2, interest, dividends, etc.) provided that the ordinary income is below $100K.
If other income is between $100K and $150K, excess depreciation gets gradually reduced and does not apply if the income is above $150K.
The remaining depreciation (if any) accumulates and gets fully deducted from any income upon the sale of the property.

The "$100-$150K" rule does not apply to real estate professionals.

As far as the source if depreciation, it does not matter if you are a sole owner of a property or an investor in a syndication. Either way you get your share of depreciation (100% in the case of sole ownership and whatever %% of ownership you have in a syndication).

For example - non-real estate professional:

• W-2 income : $90K
• Rental income: $10K
• Depreciation: -$40K
• Net rental income (loss): -$30K
• Net income: $90K-$25K (max limit)=$65K
• Excess depreciation: $5K - carry over to the next year

If income goes above $150K, the entire $30K passive loss becomes suspended until the property is sold.

Ask a CPA for more details and explanations