All Forum Posts by: Greg Tom

So let's go back to your original question. You have a high paying W2 job, let's say $150k (after subtracting 401k). Let's assume your taxes are $30k based on this salary. The question was: can you somehow reduce this $30k using real estate?

Let's be clear and not dance around the bushes. The answer is NO.

(Note: if the amount was below $150k, you would have some limited room to save on taxes, using losses from rentals. Section 199A would not help you, though)

All other ideas discussed on this thread deal with a completely different question. Which is - can you make money in real estate without increasing this $30k? To that question, the answer is YES. Now we're talking about owning appreciating rental properties with cash flow and investing inside self-directed retirement accounts.

But let's not confuse the two questions: you cannot offset taxes created by high W2 via running a real estate business. Well, if you run your business into the ground and lose a pile of money - then yes, you will also reduce your taxes. Not a strategy I would recommend though.

Perfect! Thanks so much for both your replies. Direct and to the point. We are aligned on not wanting to run failing businesses or investments in order to save a marginal % in taxes.

1 Vote

Originally posted by @Carl Fischer:

@Greg Tom

I was in the same situation years ago and found out about self directed real estate. Which is now tax free income for life. This method doesn’t help with your w2 now but as time goes on it doesn’t add to the income tax burden as income and equity increases. The bookkeeping is also easier.

Other considerations are “conservation easements” and “bifurcation of depreciation” which may be helpful off setting income. Thus delaying or deferring taxes. I am in the process of understanding the new tax laws and how to modify what I’m doing going forward. Next year I will let know if and how the new strategies and tactical moves work.

Thanks, Carl! Insightful feedback. When you say self directed real estate, do you mean investing through your traditional retirement vehicles (401k, Roth, etc.)? I've been doing that to fund my deals with 401k loans, which have been pretty convenient.

Interested in what you find for the new tax laws - the 199A law sounded exciting (https://www.madfientist.com/section-199a/), but won't do much for me because I'm not a small business. I had floated the idea of starting a management company for my properties, but believe the tax law requires you manage properties outside of your own, otherwise it is just seen as a pass through.

I hadn't heard of conservative easements, I'll research more.

0 Votes

Hello,

Wanted advice from BP. I am a big reader over at various 'retire early' sites (Money Mustache, etc.), and have a decently high savings rate after tax. I am trying to maximize my tax savings through real estate investing. I know most folks are looking to retire early through passive income, and I wouldn't mind doing that (slowly), but I don't mind my current job.

I currently have a property with two doors (renting at 1,850 and 850), and may be adding a duplex where I house hack one side. It's in a B+/A area and they are asking 375k (one side rents for 1,700, other for 1,500, but through forced appreciation I could raise it higher).

My focus is a little different than traditional BRRRR. What I'm really looking for are creative ways to reduce my taxes from my W2 job. For background:

1. I max out my 401k, Roth IRA, and HSA (triple tax advantaged) every year. I also do a lot of taxable investing in addition to my little RE ventures.

I'm stuck on what else can be done to maximize my REI for reduced tax gains. I've had numerous repairs done on my properties, and I'll be adding some appliances which should be able to be claimed on taxes this year. Another thought I had was forming an LLC property management company and visiting locations when I commute for my W2 job. Could potentially claim mileage there.

Not sure if others out there are in similar situations with strong W2 income that have found creative ways to maximize returns through taxes in REI? Would love to hear your feedback.

1 Vote

All Forum Posts by: Greg Tom

Greg Tom has started 1 posts and replied 3 times.

Post: Best Tax Advantages for REI with low 6 figure income?

Post: Best Tax Advantages for REI with low 6 figure income?

Post: Best Tax Advantages for REI with low 6 figure income?