One more question that came in after our Real Estate Deductions You Can Still Take webinar. I think this goes to the heart of the advantages of real estate investing:
- Passive Income
- Tax Breaks
Q: My wife and I are in our 50’s and want to invest in cash flow real estate now to build it into a cash flow rental income once we retire.
We both are high-income wage earners ($200K plus combined) and obviously can’t be considered “real estate professionals.” How would this best be handled as we obviously don’t want any additional taxable income right now.
It’s so refreshing to get a question on real estate investing that doesn’t have something to do with how to write off a loss. In this case, the question is more about how do we handle the income we’re making from real estate.
If you’re flipping property and creating quick income from that, you have a business. In that case, you may want to consider a business structure like a C Corporation that will pull income away from your personal income tax bracket or use an aggressive pension plan to defer income. In that case, something like a Solo 401(k) plan that allows you to put $49,000 or more for each spouse PLUS self-direct the income could be a great solution.
If your plan is to buy property and hold as an investor, use depreciation to offset the income. If you still have taxable income in excess of expenses and regular depreciation, you may explore maximizing depreciation and ‘front-end’ loading the depreciation.
Bottomline – real estate investing has a lot of tax breaks available. You can learn more by going to http://www.RealEstateLoopholes.com and listening to the webinar replay.