Part 2: This is how the rich own rental properties and pay $0 taxes.

Hey friends, last week, we talked about the four tactics the rich use in real estate to increase their income while paying no taxes. Today, we’re going to reveal the remaining three tactics that they use.

Wendy, a former Walmart cashier, transformed her financial situation by leveraging real estate. Now, she owns three properties in Las Vegas and pays $0 in taxes.

Let’s recap the four tactics how Wendy and the rich own real estate and pay $0 in taxes:

1. Depreciation.

2. Property tax

3. Home mortgage interest

4. Repair and property management fee

5. Travel and mileage

   The mileage you drive to check out your rental property, or if your property is out of state and you need to travel to inspect it, and the cost of the plane tickets, car mileage, hotel, and meals are deductible. For example, John lives in Los Angeles and has a rental property here in Las Vegas. He drives here to check out his property and make management decisions. He drives about 540 miles round trip. For 2024, the mileage deduction is 67 cents per mile, so the total deduction is $362. Make sure you keep a mileage log, receipts, and proof of payments.

6. Passive Activity Loss deduction

   Folks with adjusted gross income of less than $100,000 and own a rental property can deduct up to $25,000 rental loss against their earned income. Folks adjusted gross income higher than $100,000 but less than $150,000 your special deduction is limited to 50% of the difference between $150,000.

   In other words, if your rental property generates a loss of $1000, your adjusted gross income is $80,000, and you file your taxes as single, your total income would be $79,000.

7. Section 1031 exchange

   If you want to change your rental house to a larger one, and instead of selling it, buying a bigger one, and paying a massive amount of taxes in the gain, check out the Section 1031 Like-Kind Exchange. By deferring the gain, you can use this rule to exchange another rental home without paying the immediate taxes. The whole transaction needs to be completed in 180 days. Please seek advice from a tax professional or qualified intermediary.

   Let’s review our example of a rental property in Las Vegas with a gross income of $24,000:

You see, with this example, the rental has a net loss of $172; there are no taxes that need to be paid.

This is how the rich own rental properties and pay $0 taxes.

Check out the new rental inventories in Las Vegas and explore the rental write-off tactics like the rich Do…

Connect with me, Chloe, at (626)239-5483

Chloe Wu

[email protected]

happychloe.kw.com

For Tax advice, please get in touch with kstaxservice.com