All Forum Posts by: Jose Contreras

This is a distinction I tried to make to my CPA. However he goes on to say that since my income from W2 (outside of RE investing) is >$150K per year, I cannot take any deduction from my RE losses.

0 Votes

Ashish,

so what you're saying is that even thought my wife and I managing the properties on our own including for showings, fixing stuff and managing contractors is of no benefit from a tax perspective unless I can show that one of is a true real estate professional?

i was always under the impressions that depreciation alone could offset income earned and if it's greater than income earned it could carry over to benefit me on W2 income?

thank you all for the useful information.

Originally posted by @Ashish Acharya:

Originally posted by @Sakib J.:

@Elizabeth Brown

In the case of Jose, if he establishes a S corp and pays salaries to him... and show a loss...

1. Will that reduce Jose’s W2 income tax? Even if he and wide are not deemed RE professionals?

2. How much salary would be deemed adequate?

You dont need S-corp to do what you are trying to say. Getting S-corp is actually a very bad idea. Also, paying a salary from the activity that generates the passive income and subjecting it to the self-employment income/FICA is not a good idea.

There as some ways to convert the passive losses from the rental into an active management company loss and offset the W-2 income but has to be planned with the CPA. With just two properties, it might not make a big enough dent to even go through this. Again needs to be discussed.

0 Votes

I am really considering this. I just want to making sure I am doing everything as legally as possible but taking fill advantage of the tax law.

Originally posted by @Mike Adams:

You may want to look for a new CPA. If you are managing the properties yourself, then it's ACTIVE income, not passive income.

0 Votes

It was a crazy year trying to keep up with repairs. Something like $20k loss overall.

Originally posted by @Aaron Zimmerman:

How much income/loss do you have per tax for your two rental properties? Also, S-Corp is not recommended typically for owning properties.

0 Votes

Hello everyone,

We recently started investing in real estate in 2020. We are buy and hold investors and currently have 2 doubles in the cleveland area. We got into investing for it's wealth building annd tax benefits. We also really enjoy it. We hold our properties in an LLC.

Anyhow we are considered by many high income earners, over $400k combined on W2s. Our CPA just completed our taxes for 2020 and our tax bill is quite sizeable and we are not seeing any benefit whatsoever from our real estate activity. He tells us that since we are high income earners, >150k per year, our real estate activity is considered passive and we cannot take any of those benefits .

"LLC is there just to title those properties and to provide you with liability protection. This activity is treated as passive, and you can deduct losses just if your income is under $150k... To get those losses deducted in the current year when income is above $150K, you need to qualify as Real Estate Professional. Based on what you are doing professionally and what you are doing for those properties you can not pass that test. Having or not having LLC has nothing to do with this because the rental activity is by default passive activity."

While I understand that having an LLC makes no difference for tax purposes. We do manage our own properties including driving to and from the properties for showings and have spent a good amount of capital on repairs and maintenance.

Has anyone on the forum had any experience with this? I would love to hear what everyone thinks about this.

Thanks!

9 Votes

All Forum Posts by: Jose Contreras

Jose Contreras has started 2 posts and replied 15 times.

Post: Tax benefits from RE investing in high income earners.

Post: Tax benefits from RE investing in high income earners.

Post: Tax benefits from RE investing in high income earners.

Post: Tax benefits from RE investing in high income earners.

Post: Tax benefits from RE investing in high income earners.