All Forum Posts by: Kevin G.

Quote from @Account Closed:

Quote from @Kevin G.:

Quote from @Account Closed:

Folks - I'm here. 

Who has any questions?

Hello and thank you for helping. I have a rookie question about passive income from NNN and offsetting that income with losses (for a W2 wage earner).

For this example, let's say I have $125,000 of net income from triple net properties. This amount is currently added to my W2 income for tax purposes and this passive income is taxed 37% rate.

If I were to buy a SFH for 800,000, and say the building value is 480,000, 60% of the purchase price. Dividing 480k by 27.5 would give me 17, 454 of depreciation per year. Let's say on top of that I have loan interest of around 38,000. And rental income of $1,000 (negative cash flow on rent vs loan PMT and property tax, property mgt cost, etc) a month on the same property. Total loss (depreciation, interest, Net Loss) is 67,454.

Would that 67k offset the 125k passive income saving me roughly 24,958 in tax. (67,454 * .37).

Or said differently, the 125k and passive net income would be reduced down to roughly 57,000 and that 57,000 would be subject to tax at 37% (vs the entire 125k).

Thank or if this question is so basic!

Kevin -

Many thanks for writing.

Let's break this down fundamentally and step by step:

1. Passive Income from Triple Net Properties:
   • Net Income: $125,000
2. Rental Property Expenses:
   • Building Value (depreciable basis): $480,000
   • Annual Depreciation (assuming straight-line over 27.5 years): $17,454
   • Loan Interest: $38,000
   • Rental Income: -$12,000 (assuming $1,000/month with no positive cash flow)

   Total Loss (Depreciation + Interest + Net Loss): $17,454 + $38,000 - $12,000 = $43,454

3. Taxable Passive Income after Offsetting:
   • Passive Income - Total Loss: $125,000 - $43,454 = $81,546
4. Tax Savings at 37% Rate:
   • Tax Savings = Total Loss * Tax Rate = $43,454 * 0.37 = $16,056.98

So, in this scenario, the $67,454 in losses (depreciation, interest, and net loss) from the rental property would reduce your taxable passive income from triple net properties to $81,546. This would result in tax savings of approximately $16,056.98 at a 37% tax rate.

Your remaining taxable passive income would be $81,546, subject to the 37% tax rate. This is a simplified calculation, and I would recommend you reach out to an experienced CPA who can account for all variables in coming up with tailored advice unique to your situation.

Reach out if there are any further questions. Happy to assist. Thanks.

Excellent summation and excellent reply. I will definitely check with a CPA.

quick question regarding the summary number three:
The $12,000 in negative cash flow (Total expenses less rent received ) would be subtracted from the depreciation and loan interest? Even though that's a shortfall and the  money that has to come out of my pocket every month to pay expenses?

Even if that's the case, the tax savings in this simple example of 16,000 is greater than the out-of-pocket $1,000 a month (12k) to keep the deal going. Plus I would be building equity, plus market appreciation, plus potential rent increases, and or refinancing if rates go down.

In this basic example it pencils to acquire another asset for an appreciation play, even at a $1,000 loss a month. As the tax benefit I receive is greater than my monthly loss on the new property.?

Quote from @Account Closed:

Folks - I'm here. 

Who has any questions?

Hello and thank you for helping. I have a rookie question about passive income from NNN and offsetting that income with losses (for a W2 wage earner).

For this example, let's say I have $125,000 of net income from triple net properties. This amount is currently added to my W2 income for tax purposes and this passive income is taxed 37% rate.

If I were to buy a SFH for 800,000, and say the building value is 480,000, 60% of the purchase price. Dividing 480k by 27.5 would give me 17, 454 of depreciation per year. Let's say on top of that I have loan interest of around 38,000. And rental income of $1,000 (negative cash flow on rent vs loan PMT and property tax, property mgt cost, etc) a month on the same property. Total loss (depreciation, interest, Net Loss) is 67,454.

Would that 67k offset the 125k passive income saving me roughly 24,958 in tax. (67,454 * .37).

Or said differently, the 125k and passive net income would be reduced down to roughly 57,000 and that 57,000 would be subject to tax at 37% (vs the entire 125k).

Thank or if this question is so basic!

Hello everyone. I'm looking for some thoughts specifically for the downtown Sacramento market targeting either a two to four unit building or a 5 to 6 unit.

I'm hoping to get some opinions on:

Pros and cons of each (less than and more than 4 units).

Current rents you are seeing for a 1 bed and 2 Bed.

Buying in a good location with a building already and great shape or try to find a fixer.

Best locations/ neighborhoods to target.

Ideal cap rate and or cash on cash rate target, etc.

Current rates / down payment requirements for a >4 unit building.

It would appear to me that this market is more about appreciation of the asset than large cash flow.

I am not looking to house hack, flip etc. Looking to buy an income property in my local area.

I don't know where/how to start in other areas so open to feedback on this topic too.

Any guidance would be appreciated.

Thanks. I will look into the 30 day rental. We are in Tahoe dinner backed up to the golf course.

Quote from @Michael Baum:

Hey @Kevin G., so both @Bruce Woodruff and @John Underwood have good points depending on what you want to do long term.

Next, it isn't a STR loophole. It is just the IRS law. I have no idea why people keep calling it that.

If you want to hold it, then a long term rental is the way to go. You might look at a furnished mid term rental (long term rental shorter stay, like 3 months). If there are businesses that require traveling professionals that need a place to stay, this could be an option.

 Thanks Michael!

Quote from @Craig Jones:

201 properties on the Truckee STR waitlist as of a week or two ago, and you can't get on the list until after the 365-day change-of-ownership waiting period is up. So I wouldn't count on getting a permit real soon after that.

A decent chunk of "Truckee" is actually not inside the town limits though. Ponderosa Palisades, part of Sierra Meadows, Northstar. Those all have Truckee street addresses, same ZIP code, but are all in unincorporated Placer County. Which hasn't hit its cap of 3900 STR permits AFAIK.

Thank. I will explore the other zip codes!

Quote from @John Underwood:

Rent it long term for a year. 

You can own properties in other states and still self manage without moving to these more rental friendly states.

Thanks John! Wait California is not rental friendly? 🤦😂 Not sure where to start in owning/ managing out of state..

Thank you for your reply!

Thank you, Bruce.  I am looking into Option three as we speak. I appreciate your opinion. 

Hello BP-

I purchased a home in Truckee, CA with the Intention to Rent out the property on an STR basis. The town requires an STR permit before renting and they limit the number of STR Registration Certificates to 1,225 a year. So, there is a waitlist process.

There is also a 365-Day waiting period after a home sale before the new owner may apply for the waitlist. Even if the purchase date was prior to the regulation going into effect the waiting period would still apply.

To my questions (moving out of California is not an option :-))

1. Can the operating cost tied to carrying the property for the first year be used in any way to offset income? 

2. Once the permit is received, I know at that point I would be eligible for the SRT loophole, but can I depreciate my home based on the Purchase Price plus any upgrades (new floors, bath remodels, adding recessed lighting, etc)?

3. Any suggestions or things to consider?

Thank you in advance.