Offset your high W-2 or 1099 income with rental losses

As a general rule, passive losses offset income from the same passive bucket and active losses offset income from the same active bucket. However, there are some exceptions in which rental properties losses (generally considered passive) can offset your high W-2/1099 income.

• If your Adjusted Gross Income (AGI) is lower than $100K and you own rental properties, you can offset your W-2 income with a maximum of $25K ( $12.5k if you’re married filing separately) of rental losses. This max phases out at $150k of AGI and remaining passive losses are carried forward to future years. Tip_ Plan and discuss possible opportunities to decrease your AGI with your tax accountant so you take advantage of this strategy

• If you own short-term rentals with an average stay of 7 days or less and materially participate in the activity (for instance you spend 100+ hours in each and more time than anyone else), your rental losses become nonpassive and can offset your w2 income. Tip_ Discuss ways to (legally and ethically) create short-term rental losses with your tax accountant so you can take advantage of this strategy

• If you qualify as a real estate professional by (a) incurring 750+ hours across your real estate activities and more time than anyone else and (b) you materially participate in your long-term rentals, your rental losses can become nonpassive and offset your W2 income. Tip_ This could be a hard one to meet when you’re a busy W2/1099 professional but if you think you spend a lot of time on your real estate activities, discuss with your tax professional how to best track your time and meet the qualifications

If you’re a real estate investor, we can help you plan and structure your business to be tax  efficient. We are passionate about finding ways to lower your taxable income. Book an appointment at www.lobecpa.com and let’s strategize on your future!