A California resident is paying close to 50% fed and state taxes. If his only income is salary, then Uncle Sam is enjoying 1/2 of his labor. I use the tax write off in my decision to BUY and HOLD rental houses as long as there is positive cash flow.
If you don't have tax write-off from rental real estate, what else is there
By LASVEGASWINNER Follow Sat, 11 Feb 2012, 5:54pm 2,835 views 23 comments
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San Jose, CA
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Buy properties at the courthouse steps, cut out both middle men (listing & buying agents), and save money. Also, you get wholesale prices rather than retail prices.
RE agents keep all the good deals to themselves or give them to their relatives, friends and investors. They put the crap that none of them want on the market for the buyers.
Invest out of state. Thanks but no thanks. :)
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Las Vegas, NV
LASVEGASWINNER's website
Oh! And the brother, sister, uncle, business partner of the auctioneer doesn't have a "head's up" on which properties are worth bidding on. Inside information is the stumbling block to anyone making a "killing" on the courthouse steps. What gets thru to the uniformed is what they want
to let go.
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Nothing.
Burn the fucking thing.
Pitch a tent.
Eat.
Fuck.
Run wild in the bush.
For entertainment, stomp a Realtor® and eat it's face.
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Yes, but what about the risks involved in buying a property from the courtsteps?
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Scottsdale, AZ
robertoaribas's website
foolish idea. buy rental properties that make so much money, you end up paying even more taxes...
Losing a dollar to save 50 cents? great business plan!
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Las Vegas, NV
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"Losing a dollar to save 50 cents? great business plan!"
And a better business plan for investing and getting a rax write off would be???
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LASVEGASWINNER says
Making money. Any business plan that revolves around losing money is idiotic.
LASVEGASWINNER says
Wow, big shocker. A real estate agent telling people that losing money is a good investment.
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Boise, ID
Norbecker's website
I have a better (for me) idea. Invest your hard earned $$$ in my company and I will "lose" it generating your tax write off. Yea I will start a business personally delivering condoms to prostitutes (the real ones not the used house sales person type) in Las Vegas and other cities that I want to visit. Of course the business will cover my travel, lodging and meals and maybe an encounter or 3 so I can demonstrate proper use of the "product". This way someone is at least enjoying "getting screwed" while losing your $$$$.
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How are they paying 50% of income in taxes? I make well into the six figures and even with federal, state, and property taxes, don't pay anywhere close (maybe 32% in effective, not MARGINAL, rates). If they are paying the very top rates, they don't need to worry about taxes...they are raking it in. (more than $1M/year).Check the figures---federal taxes are the lowest they have been in more than a half century, if not more.
Time to get an accountant that knows what they are doing.
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The top fed rate is 35%, plus another 1.45% for Medicare. the top CA rate is about 10%. That's a top marginal rate of 46.45% - but - in this case some of the CA tax would be deducted from the federal rate. And this is marginal rates, on income above 388k or so. So if someone were making hundreds of millions of dollars as w2 income, and had no writeoffs whatsoever, they could approach 46.45% tax rate, but could not cross 50%.
As Waitingto buy says, this is pretty unlikely.
There's definitely a lot of confusion (intentional or not) about how marginal taxes work.
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In defense of LVW, he did say as long as there is positive cash flow. For married, filing jointly, your federal marginal rate is 25% in the 'sweet spot' for deducting passive losses (phase out begins at ~$100k and is totally gone at $150k). In California, you're seeing about a third of your money back for every dollar of passive losses. The gov't gets back as much as 28% with depreciation recapture, IF you sell. But this is CA, so pass your property tax basis onto your heirs and they'll step up the tax basis to minimize capital gains. IANAL. Consult a tax attorney for advice.
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LASVEGASWINNER says
Total crappola. I guarantee this is from someone who has never bought a single house this way.
Everything "gets through" in a foreclosure auction. There's no inside information to be had because in many cases the home is still occupied. Just knocking on the door and asking questions is the best way to get a heads up.
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Scottsdale, AZ
robertoaribas's website
agree with IWOG. I have been to and bought homes at auctions, and simply put, at the ones I've been to, it is a wide open bidding process. I was just outbid last week on a home that I had under short sale contract at $106K. It sold at auction for $120K my stopping point was $110K. bank did far better foreclosing than they would have from the short sale, and my offer came after the home was on the market for 4 months. It had two loans, and the second dragged its feet approving the short sale, refusing to take 10% of the debt. instead they got nothing!
I have an idea: instead of posting shizzle out of your posterior, actually to and observe an auction at your local court house, then report back.
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A guy in that kind of tax bracket isn't going to be running RE scams and he is certainly not going to be talking to scum like this grinning jackal, except to ask to use his face to wipe his ass.
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Here's a really good idea, leave Ca. and move to a state with much less taxes, Arizona, Nevada.
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Plus, if you move to AZ or NV, your income will be lower, so you'll pay less taxes that way as well.
---
Regarding the whole "move out of CA to pay less tax"- in reality, the housing price difference is a much bigger factor. Let's say that a $1m house equiv in SJ would be $250k in NV or AZ. (numbers pulled from posterior). 3.5% interest + 1.25 % prop tax = 4.75%. Costs $47.5k to live in CA, $11,875k in NV or AZ. $35k/yr difference. This is a naive analysis as it ignores appreciation or depreciation in CA vs NV or AZ, plus the prop taxes may be different, but, bear with me.
Someone who makes $300k in CA would pay about 8% of income in tax. There is a higher marginal rate, but not all income is taxed at that rate, plus deductions etc. This tax would be $24k. AZ has lower rates; let's swag that it would be 3.5% at $300k. $10k. NV has no state income tax. So by moving out of CA to AZ or NV, our $300k earner would save $14k or $24k per year. The house price would be a much bigger factor.
OTOH, utility bills will be higher in NV and AZ. Property tax rate may be higher (although on a lower assessment). And the state tax is deductible from fed tax unless you have AMT. Finally, the chances of getting a $300k job in NV or AZ are less than in CA.
I'm biased as I live in CA, like it, and have no desire to move out to save $14k/yr in taxes, so take these numbers with as much salt as you like!
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Scottsdale, AZ
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SiO2 says
not in AZ. it is nominally 1% of value, but the values are never as high as reality. I pay $2000 a year on a home worth well over $300K today.
Also, the energy bills are not that high either. I pay $250 a month average year round on a very old 2300 square foot home with a pool, and 4 people 3 dogs living in it.
As to the salary thing, it really depends. When I left LA, I took a job in Melbourne Florida and actually got a raise. I went from
1. LA cost of living to small town florida cost of living.
2. LA car insurance to small town florida car insurance.
3. A pay raise.
4. California state tax to zero florida state tax.
It was breathtaking how much more money I had left over every month!
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Here's a fallacy in his analysis. If the rental properties are generating positive cashflow, there's no write-off to offset your earned income. You can offset some of your positive cashflow with depreciation of the improvement/structure. Whatever left over after depreciation will be added to your earned income.
You invest to make money. You don't invest to lose money and write-off the losses to get some of your taxes back.
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yep, useless analysis.
for salary people.
The most basic techinique to reduce tax is to pre-tax the hell out of everything. retirement, dependent care, health care, transportation, etc. Then you can try to deduct on stuff you would deduct anyway like home. Then you should look for useless but valuable stuff and donate to charity.
The intermediate strategy is to open a company and start deducting stuff you normally can't. Cell phone, cars and meals and manipulate the timing of revenue and expense. (bonus depreciation for cars and section 179)
The most advanced strategy is to change the structure of your compensation from salary to capital and enjoy preferential tax treatment. Don't pay me a salary, pay me with equity, the carried interest loophole.
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Victorville, CA
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LASVEGASWINNER man...you've got the look down, buddy!
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50% tax is quite possible on earned income: 15+% self-employment tax on top of 25-33% federal income, 8% state income. The salaried workers also effectively pay both halves of the payroll tax, via lower wages; you don't believe the employer failed to do math and account for the total cost of hiring you, do you?
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robertoaribas says
Hi Roberto, thanks for the informative response. I didn't realize that AZ prop tax was so low. I know that TX and PA have fairly high % prop taxes.
Yes, the salary thing will vary a lot, depending on the job. Some jobs will pay more, or have more options in CA. Others will be more uniform.
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Reality says
Hi,
the SS portion of the self-employment tax phases out after $105k or so. So anyone with 28%+ marginal fed income tax wouldn't be paying SS on the income that's taxed at that amount.
Plus, people playing at the top rates can deduct state taxes, which helps to some extent.
Finally, these 28,33,35 numbers are marginal tax, not tax on all income. So someone making $500k doesn't pay 39% on the $500k, but just on the portion in the top bracket, after exemptions and deductions. Our $500k w2 earner probably pays about 22% fed tax, 8% ca tax, 1.5% medicare, and 1.4% ss (since SS is only on the first $105k or so). Total, 33%. Maybe that's too high, maybe it's too low, but it's not 50%.