[USER]

High income earner married couple in their late 40’s. Maxing out 401K, backdoor Roth, and has HYSA and brokerage account. Not qualified for HSA.

Thinking about investing in real estate to diversify but can’t really get straight answer from friends that does it on how it helps lower your taxes.

I know most of my landlord friends don’t report all of their rental income so we can’t really trust them.

Can you explain to me like a fifth grader?

[Lana]

Read / listen tax free wealth book, there are a few chapters in it where depreciation and cost segregation are explained.

Not terribly deep but perfectly sufficient to orient yourself

[Ian]

The short answer is deductions from rentals don’t offset W-2 income. The deductions only offset the revenue directly from the rentals themselves.

The long answer is, if you can qualify as a “real estate professional” under tax code, then rental deductions can offset W-2 income.

The more nuanced answer is you still pay the taxes eventually.

There are lots of mechanisms in real estate to defer taxes, potentially until your death, but if you ever exit the real estate game, the taxes still get paid.

Real estate is kind of like a 401k with no limit on contribution, high dividends, and funded by a government subsidized loan.
Rentals are a good investment.

They can pretty easily return 2x what you would get from investing in the stock market, and once you get “good” at real estate investing you can pretty quickly get a 5x-10x return over what stocks can provide.

Its not passive though. You will do more work managing a rental than investing in stocks.

If you want to mix real estate with the lower touch needs of stocks, look into REITs, or if you’re a high earner and a designated qualified investor look for syndication and/or “private placements”.

[Bren]

Ask your CPA. You need to buy property through an LLC corporation. Then you can write off expenses and depreciation and more. Your CPA can help you

[DM]

You are correct. The only way is if you show huge losses. Once you’re making real money you pay as we are.

Did it the other way until it was time to do it the right way.

[Robert]

Instead of us explaining it to you like a fifth grader…..pay for a consultation with a good Tax Accountant/CPA with substantial experience with residential real estate.

The dude I’m using right now is not cheap; but even though I’ve only been with him a short time I’m very, very impressed.

[SG]

If you qualify as a real estate professional (google it), you can lower your taxes as your “rental loss” can offset against your active income.

If you can’t meet the REP status, your rental income is passive and doesn’t help you much against your active income.

[Kim]

We are married high income earners with rental properties and the rentals do not lower our W-2 income taxes.

[Author]

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