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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Quick takeaways
- Depreciation isn't a dollar-for-dollar tax savings but offsets taxable income, showcasing its true impact on cash flow.
- Qualifying as a Real Estate Professional allows investors to convert passive losses into active losses, maximizing tax benefits on their incomes.
Deep dives
Understanding Depreciation Savings
Depreciation is often misunderstood, with many believing that $100,000 in depreciation directly translates to a $100,000 tax savings. In reality, depreciation is considered a loss, meaning it offsets income rather than providing a dollar-for-dollar savings. For example, if an investor incurs $100,000 worth of depreciation and is in a 30% tax bracket, the actual cash savings would be $30,000, not the full $100,000. This misconception highlights the need for investors to grasp how depreciation can impact their financial outcomes and tax liabilities.
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