530: A Tax Attorney Talks Tax Mitigation with Buck

21 snips

Oct 26, 2025

Buck Joffrey chats with Robert Wood, a seasoned tax attorney and managing partner at Wood LLP, who specializes in tax strategies for high-income individuals. They dive into the intriguing short-term rental loophole, which allows depreciation losses to offset W-2 income—an essential tactic for high earners. Robert also discusses tax reduction strategies, the ins and outs of qualified small business stock, and how to navigate capital gains taxes. Plus, he highlights the importance of proper CPA guidance to maximize these strategies!

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INSIGHT

Short-Term Rentals Can Be Active Income

Short-term rentals can convert passive rental losses into active business losses if average stays are ≤7 days and you materially participate.
That reclassification lets depreciation offset W-2 income without real estate professional status.

ADVICE

Run A Cost Segregation Then Use Bonus Depreciation

Do a cost segregation study to reclassify portions of a property into short-lived assets like furniture and appliances.
Use bonus depreciation to deduct much of those 5-year assets immediately, massively accelerating write-offs in year one.

ADVICE

Talk To Your CPA Before You Buy

If buying a $1M short-term rental with ~30% personal property allocation, expect accelerated depreciation roughly equal to your down payment.
Consult your CPA to ensure material participation and correct reporting so the losses offset W-2 income legitimately.

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This week’s Wealth Formula Podcast features an interview with a tax attorney. While I’m not a tax professional myself, I want to drill down on something we touched on briefly that is incredibly relevant to many of you: the so-called short-term rental loophole.

If I were a high-earning W-2 wage earner, this would be at the top of my list to implement—and I know many of you are already doing it. The short-term rental loophole is one of those quirks in the tax code that most people don’t even know exists, but once you do, it can be a total game-changer.

Here’s why. Normally, when you buy a rental property, depreciation losses can’t offset your W-2 income. They’re considered passive, and they stay stuck in that bucket.

But short-term rentals—Airbnb, VRBO, whatever—work differently. If the average stay is seven days or less and you materially participate, the IRS doesn’t classify it as passive. It becomes an active business.

That means the paper losses you generate can offset your ordinary income, even from your day job. Normally, you’d need a real estate professional status to get that benefit. This is the one situation where you don’t.

So let’s walk through how it works. When you buy a residential property, the IRS requires you to depreciate the structure—the walls, roof, foundation—over 27½ years. On a million-dollar property, that’s about $36,000 a year. It’s a slow drip.

A cost segregation study changes that. Instead of treating the property as one block of concrete and wood, it carves out the parts that don’t last 27 years. Furniture, carpet, appliances, cabinets, and even ceiling fans—those are considered 5-year property. In other words, you can depreciate them much faster.

Now add bonus depreciation. Instead of spreading those 5-year assets out over five years, the current rules let you write off most of them all at once in year one.

Here’s the example. You buy a $1,000,000 short-term rental and finance it at 70 percent loan-to-value. That means you put in $300,000 cash and borrow $700,000. A cost seg often shows about 30 percent of the property—roughly $300,000—is 5-year personal property. Thanks to bonus depreciation, you deduct that entire $300,000 immediately.

So you put in $300,000 cash, and you got a $300,000 paper loss in the same year. In practical terms, you just deducted your entire down payment against your taxable income. This is what real estate professionals do all the time and why they often end up with no tax liability at all.

In this case, it works for you as a W2 wage earner. And for that reason, I think its one of the most powerful tools out there for high paid professionals that is grossly underutilized.

Remember, the biggest expense for most people is the amount of tax they pay—especially W2 wage earners. This strategy lets you use money you would otherwise pay the IRS to build a cash-flowing asset for yourself.

Listen to this week’s Wealth Formula Podcast to learn other ways to legally pay less tax!