All Forum Posts by: Adam Rasmussen

That sounds like he easily meets the majority test since 100% of his time is devoted to real estate. Sounds like he qualifies! 

Absolutely. If you are a high income earner, the IRS does not allow you to take a "net rental loss." Any losses are carried forward to future years. 
But if you qualify as a real estate professional, the IRS sees your rental activity as active instead of passive and allows you to take losses to offset other income, like your wages. 
This is really the main draw to being a real estate pro.  

That's creative thinking there! Sounds like you're talking about an installment sale where you are spreading any gain over a number of years. You would only recognize the portion of gain equal to the percentage of payments received on the note. 

Keep in mind that your payments won't be your recognized income either. Hypothetically you could receive $30k in payments towards the note during the year but only have to recognize $20k in income. The other $10k would be a return of your basis (similar to how you can't deduct principle payments on your mortgage, you don't have to recognize principle payments as income when you're on the receiving end of things). 

Soooooooo smart! You have a great preparer lol 

With technology nowadays there is not much of an excuse to not document. It will be more than worth it if Uncle Sam ever comes knocking and wants proof! 

That is correct. Capital gains are included in your calculation for MAGI and any losses from rentals are carried forward to the next year. However, if you have operating losses for the rentals that are sold, those can be taken in the year of sale. 

Definitely a common question that I hear a bunch from my clients. For good reason too! You essentially need to dedicate a majority of your year to real estate related activities. In addition to that you need at least 750 hours of related work to qualify. 

With my clients who have W2 wages but legitimately qualify as a RE pro I strongly advise them to document their hours during the year just in case. Better to have it and not need it than to need it and not have it! 

The threshold is based off your MAGI (Modified AGI). 

It honestly depends. I believe to fully realize the tax benefits of real estate you need to qualify as a real estate professional. For everyone else (especially those with higher W2 wages) real estate professional is only somewhat beneficial from a tax standpoint. 

It sounds like you are running into the passive activity rules. If you make over $150k in other income you cannot have a net loss for your rental activity. Any losses you have will be carried forward to future years. 

You are able to take a maximum of $25k to offset your W2 income if your income is below $100k. Once you are in the $100k - $150k range, your losses are limited. If you are above $150k, you cannot take any rental losses against your W2 income. 

This is a great summary for an already advantageous plan. I wanted to throw in a note specific to Oregon taxpayers:

Oregon is now giving taxpayers a refundable credit for 529 contributions starting in 2020. I believe they are the first state to do so. Previously, residents were only receiving a deduction for 529 contributions.