The Passive-Aggresive Paradox

In therapy passive sometimes has a negative connotation. Not always so in business! Your business activity is considered passive if you are involved in it for less than 500 hours per year. Your income from your regular W2 job, is considered active income and here’s the rub: if you have a loss from your rental property (passive income), the loss cannot be offset against your activeW2 income. What to do?

To minimize your taxes owed from a passive income loss, you need to have a passive income gain to apply the loss against. One strategy is to have passive income from some other business. Say, you invest in an S Corp business and don’t materially participate in its business operations, then the taxes on the passive income generated from the S Corp can be offset by your rental property passive loss.

The bottom line: 1. invest in real estate that generates income while taking deprecation, resulting in a loss on paper; or 2: invest in an S Corp as a minority shareholder where your share of income is either not taxable or taxed on a lower amount, depending on the amount of your rental property paper loss.
 
You get to have your cake and eat it too!

To learn more, Your Truly is here to help.