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Real Estate - Active vs Passive Investors?
Any "active" investors here? Jurgen? Wondering if the tax benefits are worthwhile?
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11-15-2005, 08:01 AM
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By active investors, do you mean landlords and such? I thought you had to be an active investor in order to reap tax benefits. And, benefits are phased out the more you make, no? Or is this for passive investors, I forget. And, I thought to be an active investor, you had to be an active landlord, meaning you spend more time dealing with real estate issues than any other activity or you have a RE license.
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11-15-2005, 08:15 AM
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Yes, being a landlord is one aspect. I believe you also have to prove that you spent at least 750 hours per year with your real estate investments. Apparently, there are huge advantages if you are deemed an "active" investor.
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11-15-2005, 11:02 AM
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The benefits to Acitve management are you can deduct active real Estate losses aginst other income. (income from other sources) If you are a passive investor you can only deduct passive income from passive losses. These losses are not phased out for active investors. Motion is right about the hours spent. Also best to set up an LLC to be a holding company for the Real Estate.
Example: My wife and I have an LLC that holds the Rental properties. She is actively involed in the day to day management. Any taxes, losses or expense are deductible against my salary from my current job.
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11-15-2005, 12:41 PM
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So the general idea is that costs and depreciation can be deducted against your other income? Sounds juicy to me
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11-15-2005, 01:31 PM
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Unconstitutional Patriot
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It sounds like they are right. Rental income is my sole source of income, so I don't need to be able to declare losses against other income. One fellow you might look up is John Hyre. He is a tax specialist for real estate.
Jurgen |
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11-15-2005, 02:21 PM
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Correct,
worked out very well last year where my taxable income was 40% less than my Salary due to the depreciation and other expenses I had incurred during the year. (however, I wouldn't expect a tax break this big every year) Also, the properies have a cap rate of 10-12%. Doesn't make sense to do it simply for the tax benefits. That's nice, but you want the properties to be viable investments in the long run. and no....the properties aren't in California
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11-15-2005, 02:24 PM
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