All Forum Posts by: Sean Graham

Hello guys! I and my husband own a STR company with a few properties along with our W2 income. We need an aggressive CPA who can help protect our money from the tax man! I believe we have a pretty solid set up so just need a tax magician to do their magic. The last CPA we worked with told us that we have to pay taxes if we make money. That is really just not the mindset we want to work with. We already pay enough taxes and don't need to pay more than we absolutly have to! Thanks guys :)

Hi everyone, when meeting with my CPA recently I was instructed by here that if you obtain "Real Estate Professional Status" as per the IRS rules then your rental income become "active" instead of "passive" income in the eyes of the IRS. She then stated that when it becomes active income it is subject to the 15.3% self-employment tax. I wanted to get some insight from others on if this is true since I can't find a good answer on the IRS website, and if it is true why does anyone want to gain real estate professional status?

@Sean Graham isn’t your example paying for another cost segregation, which will cost more than a 1031, just to break even on taxes? As opposed to either doing the cheaper 1031 and being ahead on taxes. Or doing the 1031 and a cost segregation and being way ahead? It seems like the worst choice. 

I'm probably just coming at it from a bad angle as I'm not a big cost seg fan on SFR. I like having my depreciation expenses being available against just my highest taxes every year rather than use too much in year one. Of course I never had a really high w-2 income to offset. So I went almost 7 years paying zero taxes, until I started paying properties off. Now as my income accelerates I'm happy to have the depreciation.

I was simply trying to make the best of his bad situation. I don’t make any money whatever he chooses to do. It’s all good.  :-)

Short answer is you’ll owe as much or more taxes than you saved with your cost segregation if you don’t do a 1031. So, If you don’t do a 1031 you shouldn’t have done the cost segregation. If you thought that was worthwhile this should be too. 

Let me start off by stating, I'm sure this question has been posted somewhere on this forum, but I cannot find the answer I'm looking for. My wife and I file taxes jointly in excess of $300,000/annually from our W2s and another $50,000+ from businesses. We currently have two rental properties, both owned in our names not in LLC. We are ready to move forward to begin acquiring more properties, but I am wondering what has everyone done in order to minimize taxes for their real estate? I see these "guru's" saying they don't pay any taxes or little to none. I prepare my taxes myself and cannot find a way to reduce my tax burden through real estate. I'm definitely naive on the tax side of things and we are about to begin talking with tax strategist to best maximize our deductions. I also am aware that we are increasing our net worth through real estate, but we are paying so much in taxes and cannot claim the renovations or improvements on the properties we own due to our income. We are looking at the compound asset acquisition and also using the short term rental loophole for our future properties and likely moving my wife into the real estate professional position while I remain at my W2 position.

To sum it up, I would like to know what higher income W2 earners are doing in order to help offset their W2 taxes or if there is a way?  We are also interested in knowing people's experiences utilizing tax strategists.  We are quickly moving that direction as there is obvious value in using them. 

Thank you and really enjoy this group!

Quote from @Pavan K.:

Quote from @Natalie Kolodij:

Several notes: 

1. $50k land value on a $600k property sounds very low / possibly incorrect 

2. That price for a cost segregation study is on the high end for a single family home 

3. "I would need to get a cost segregation study done  in the first place" Need to get it done for what? 

4. Without a cost segregation you depreciation the building value of your property across 27.5 or 39 years. It's not required in any way. 

With a cost segregation study your building value will be broken out into many detailed components which will have lives of 5,7,15 and 27.5/39 year  lives instead. Allowing you to accelerate some of the depreciation. (and utilize bonus depreciation on the assets with lives of 20 years or less)

5. Possibly most important: can you utilize any losses generated by the rental property? Or will you be subject to the passive loss limits? 

Without a specific use for losses generated; utilizing a cost segregation study to generate large losses you can't use won't benefit you. 

- Are you or your spouse an IRS real estate professional? 
- Is this a Short-term rental? 
- Do you have other passive income sources? 

-Is your Adjusted gross income under $100k which would allow you to use some amount of passive losses?

Thank you Natalie.

1. $50k land value on a $600k property sounds very low / possibly incorrect.  " 

"This is a new suburb,mostly farmlands ,converted to residential zone . I did check county records for the land value."

2. That price for a cost segregation study is on the high end for a single family home. 

" Noted. I'll shop around,when its time " 

3. "I would need to get a cost segregation study done in the first place" Need to get it done for what?"  

    " I might have understood it incorrectly. The study needs to done for tax filing purposes?"

Unfortunately, we don't qualify for RE professional and this is a long term rental. Was hoping to find if cost segregation could offset or reduce tax liabilities on W2 income , which looks like it won't unless we are RE pros or it's a short term rental. Kind of in the higher tax bracket and finding ways to reduce our tax burden .

Not needed for tax purposes or really recommended unless there is a specific use for generating losses. 

You can't use the losses against your W2 income-so generally a cost segregation study won't help you. 

And on the land value- is $50,000 the amount the county had listed? 

You'll want to use the same % ratio between building and land; not the actual amount/value listed. 

Wondering if losses from passive rental income (I.e. long distance property managed by third party) could offset capital gains from stocks? 

Hey @Ben S., you may want to check with @Chris Schmidt-Loffler and his firm.