The Real Estate Professional Status How Depreciation Affects Your Taxes & Bottom Line
Mar 12, 2025
Discover the common misconceptions surrounding depreciation and its real impact on your taxes. Learn that a $100K depreciation deduction isn't direct cash savings, but rather a tax benefit. The episode clarifies the crucial difference between active and passive income, and how aligning losses appropriately can maximize your savings. Plus, find out how achieving real estate professional status can help offset even more income, including your spouse's! Tune in for insightful tax strategies tailored for real estate owners and business operators.
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Depreciation Isn't Direct Cash Savings
- Depreciation is not dollar-for-dollar tax savings; it represents an expense that reduces taxable income.
- Saving $100,000 in depreciation means you save taxes on that amount, typically around 20-30%, not $100,000 cash.
Match Income and Loss Types
- Depreciation losses must match the income type to offset taxes: active losses offset active income, passive losses offset passive income.
- Real Estate Professional Status (REPS) converts passive real estate losses to active losses, enabling wider income offset, including a spouse's income.