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Ideal Tax Scenario In Real Estate

Ideal tax scenario in real estate

  • “What is one of the best combinations to get the lowest possible tax bracket?”
  • If a person has a W-2 job and is making fairly good money, and has the spouse who manages all of the family rental properties or commercial buildings or handles fix-and-flips or is a real estate agent, this combination of a real estate professional and a W-2 professional or job works really well together in the tax code.
  • What that means is is that any losses in the real estate business, including depreciation losses from rental properties, can offset the income of the W-2 person in the household.

Hello everyone; it’s Shauna, the Tax Goddess, here with you today to talk about one of my favorite subjects. I get asked this actually pretty frequently: “What is one of the best combinations to get the lowest possible tax bracket?” Now, if you don’t know, if you’re new to our channel, I love real estate, personally.

I am a big fan of real estate. Commercial, residential, real estate agents, brokers, whatever, fix and flippers. I love real estate, so one of my favorite combinations in the tax code is if you have one spouse that has a W-2 job making fairly good money, and you have the other spouse who manages all of the family rental properties or commercial buildings or handles fix and flips or is a real estate agent or whatever, that combination works really well together in the tax code.

That combination between basically a real estate professional and a W-2 professional or job, those two work really, really well together in the tax code, and the reason why … Let’s take for example real estate. If you are a real estate professional, meaning that you spend more time on real estate than you do in anything else and at least 750 hours a year in real estate, so if you have five rental properties, that’s fairly easy, that person is now considered per the tax code a real estate professional. What that means is is that any losses in the real estate business, including depreciation losses from rental properties, can offset the income of the W-2 person in the household.

We’ve seen cases where the wife is making a W-2 of $150,000 a year, the husband is a real estate professional, and they’re still making cashflow, right? Positive cashflow, we always want positive cashflow, but the depreciation expenses on the family rental properties … I think in this particular case, they had six. Six rental properties’ depreciation almost completely offset the $150,000 worth of W-2, so their net taxable income was something like $15,000. Super, super low. They paid very little tax and it was all above board legal, so this is one of my favorite strategies in the tax code.

If your family fits this position and you don’t know about this strategy somehow, give us a call. We’d be happy to go over it with you. TaxGoddess.com. You can always find me on Facebook, Twitter, LinkedIn, Skype. You name it, I’m here, so hope you guys are having a great day and I look forward to sharing more tax strategies in the future. All right.

 

 

 

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PLEASE NOTE: As of late Aug 2018 there was a proposed law change that would disallow a double deduction for these charitable credits at the federal level for contributions made after Aug 2018. You are still eligible for the AZ state tax credits as the change would only impact your ability to take them as charity donations at the federal level.
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