Why every real estate agent should own rental real estate

Real estate agents that want to invest in real and pay less in income tax have a great tool at their disposal, yet most agents don’t own investment real estate!  If you are an investor and your adjusted gross income is over $150,000, you cannot deduct passive losses against your other income.  A real estate professional can however deduct unlimited paper losses against their income each year, if you qualify and meet these guidelines.

1) more than half of your activities for the year must be in the area of real estate and

2) you must spend more than 750 hours (about 2 hours a day) a year practicing real estate. 

Every real estate agent should own property to take advantage of this incredible tax break, and ideally you’ll find a property that almost breaks even or makes money, yet shows a ‘paper’ loss through depreciation, taking real dollars off your tax bill at tax time.  Or just find one you enjoy and use, knowing that the losses you take will actually help you at tax time to shelter your ordinary already over-taxed income. 

Depreciation works by dividing the purchase price by 27.5 for residential, and 39 for commercial, and that gives you the amount of deduction you can take each year for depreciation (it’s almost the exact number, but the mid-month convention makes it a bit different the first year).   Say you buy a condominium for $229,000 that is rented some while you are not using the property.   You are allowed to take ($229,000/27.5=)$8327.27 as a deduction even if you bought the condo with little or no money down.  This money never came out of your pocket, but the deduction is very real.  This allows you to show a paper loss, even if you condo rented so much that it broke even! 

Real estate agents are always preaching about what a great investment real estate is, and with this passive loss rule, it really is a great tax shelter for real estate agents. 

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