Tax strategies

For landlords, initially taxable rental income is very little or negative. But as times goes, you will start having taxable rental income. What’s the best strategy to minimize the tax burden?

I can think of the following ways. Is there any better ways?

  1. Cash out refi your rental property and pay down or even pay off your primary home loan. This way, all the interest will be offset by rent.

  2. Buy a money losing rental property with poor cash flow but good appreciation potential. Not sure if this is a good strategy though. Losing money is bad, though paying unnecessary tax is also undesirable.

Come on @BAGB at the end of the day there is no free lunch. If you make money you ought to expect to pay Uncle Sam his fair share. With rental property at least you do have depreciation and potentially appreciation to make that late night call (assuming no property manager) somewhat more acceptable. Positive cash flow is a good thing!!!


If you can qualify for loans, refi and buy more properties. …tax efficient but riskier than just paying the taxes

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keep your rents low. You’ll pay less tax then! :wink:

I’m fine tuning my taxes as we speak. I can see what you’re talking about. I have some properties that I bought over 10 years ago, with 15 year loans… very low balances, others were refinanced to as low as 3%… even with depreciation there’s taxable income.

My solution has been (besides charging below market rent-- I’m not kidding!) to buy a new property every year.

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What happens is, as I found out with you guys, you are…hmmm…very stubborn to hear some advise.

There are many tax loopholes you can utilize, but what the heck, you keep going against the wall every day expecting a door to open. That simple.

When your rental property is losing money, you like to have more loan on primary home since primary home interest is deductible. But once your rental is making money, you want to have more loan on rentals since primary home interest deduction may not be 100%. Right?

Put your paid off rentals in a LLC and set up a pension. Or just cash out refi and buy more properties.

At the end of the day you pay taxes because you make money. So I am with @sfdragonboy, it’s a good “problem” to have.

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Paying tax is our taxpayer’s proudest job, nothing compares with paying taxes without even a letter of appreciation. :grinning:

However, it would still make sense to postpone taxes until after your retirement. During your prime years, you better minimize and delay taxes and use the opportunity to grow your nest egg. When you retire or become too old, you can just simply pay tax and do nothing

Are you maximizing your retirement account? If not, maximize first.

Unless you are retired or about to be retired, do not pay off any fixed loans and do not pay more than what is minimum necessary. As long as income stream is there, either by W2 or corp - business, stay with max loan so that you get tax write off.

Take refi from rental, but not pay off any other rentals or primary home.

You can buy another rental or just invest in good stocks or low cost mutual funds. As of now, Since Jan 1st of this year, most of the stock investors would have got appx 5% or more (SPY YTD is 5.57%, NASDAQ YTD is 8.22%, AAPL YTD is 18.28%). There may be UPs and DOWNs, but confident to reach 8% level easily

Here too, you will get income, either yield or growth which is positive cash flow. Even if you pay tax on it, worth earning and paying tax.

For w2 earners, you can maximize 401k at your workplace. For rental income, is it legal to set up another 401k? If not using property manager, rental can be a business and not a passive income? Btw, do they allow a SEP/401k on passive rental income?

Pension is a little scary though

You have Roth or traditional IRA for earned income (not passive income).

If you form a company and company owns rental, I think you can do SEP (need to check with some CPA).

Same question was asked many times, and they all responded.

You are just trading deductions: Schedule E (rental) for Schedule A (home interest). Both of these come off before the tax calculation, so no net savings that I see.

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I’ve heard landlords telling me that’s the key for success, besides knowing the trade. Tenants are more loyal to you if you don’t raise rent every time the others do it. That helps you by not having empty apartments once in a while. One day without rent counts little by little.