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   3,040 views   18 comments
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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.

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  1. LASVEGASWINNER


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    1   7:30pm Sat 11 Feb 2012   Share   Quote   Permalink   Like (1)   Dislike (3)  

    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.

  2. APOCALYPSEFUCKisShostikovitch


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    2   7:55pm Sat 11 Feb 2012   Share   Quote   Permalink   Like (5)   Dislike (1)  

    Nothing.

    Burn the fucking thing.

    Pitch a tent.

    Eat.

    Fuck.

    Run wild in the bush.

    For entertainment, stomp a RealtorĀ® and eat it's face.

  3. novice RE investor


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    3   9:55pm Sat 11 Feb 2012   Share   Quote   Permalink   Like   Dislike (1)  

    Yes, but what about the risks involved in buying a property from the courtsteps?

  4. LASVEGASWINNER


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    4   11:15pm Sat 11 Feb 2012   Share   Quote   Permalink   Like   Dislike (3)  

    "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???

  5. Nomograph


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    5   7:36am Sun 12 Feb 2012   Share   Quote   Permalink   Like   Dislike (1)  

    LASVEGASWINNER says

    "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???

    Making money. Any business plan that revolves around losing money is idiotic.

    LASVEGASWINNER says

    BUYERS AGENT LAS VEGAS BANK-OWNED HOMES

    Wow, big shocker. A real estate agent telling people that losing money is a good investment.

  6. Norbecker


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    6   8:58am Sun 12 Feb 2012   Share   Quote   Permalink   Like (1)   Dislike  

    I have a better (for me) idea. Invest your hard earned $$$ in my company and I will "lose" it generating your tax write off. Yea I will start a business personally delivering condoms to prostitutes (the real ones not the used house sales person type) in Las Vegas and other cities that I want to visit. Of course the business will cover my travel, lodging and meals and maybe an encounter or 3 so I can demonstrate proper use of the "product". This way someone is at least enjoying "getting screwed" while losing your $$$$.

  7. Waitingtobuy


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    7   9:19am Sun 12 Feb 2012   Share   Quote   Permalink   Like (1)   Dislike  

    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.

  8. SiO2


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    8   2:42pm Mon 13 Feb 2012   Share   Quote   Permalink   Like   Dislike  

    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.

  9. EBGuy


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    9   3:36pm Mon 13 Feb 2012   Share   Quote   Permalink   Like   Dislike  

    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.

  10. iwog


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    10   4:13pm Mon 13 Feb 2012   Share   Quote   Permalink   Like   Dislike (1)   Protected  

    LASVEGASWINNER says

    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.

    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.

  11. APOCALYPSEFUCKisShostikovitch


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    11   6:30pm Mon 13 Feb 2012   Share   Quote   Permalink   Like (2)   Dislike (1)  

    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.

  12. bracke


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    12   5:03am Tue 12 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    Here's a really good idea, leave Ca. and move to a state with much less taxes, Arizona, Nevada.

  13. SiO2


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    13   5:24pm Tue 12 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    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!

  14. E-man


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    14   6:54pm Tue 12 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    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.

  15. JodyChunder


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    15   7:58pm Tue 12 Feb 2013   Share   Quote   Permalink   Like (1)   Dislike  

    LASVEGASWINNER man...you've got the look down, buddy!

  16. Reality


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    16   11:04pm Tue 12 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    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?

  17. SiO2


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    17   8:02am Wed 13 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    robertoaribas says

    SiO2 says

    Property tax rate may be higher

    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!

    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.

  18. SiO2


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    18   8:08am Wed 13 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    Reality says

    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?

    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%.

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