[quote=dumbrenter][quote=EconProf]
Actually, no. I just agreed with him that for really higher income folks–above $250k or so–some tax benefits start to phase out. Also, some additional taxes start to apply…part of Obamacare, I believe. In recent years at the CA and Fed level, higher effective marginal tax rates for the rich have been going into effect via slight-of-hand. Some of these new rules will apply to rental property owners, but only very high income taxpayers.
But for the vast majority of Piggs reading this, rental “losses” are used to offset W-2 income, thus lessening the tax liability.[/quote]
Are you sure that folks with > 150K AGI can still get the benefit of offsetting the rental “losses”? And they don’t have to be a full-time real estate professional to get the depreciation losses?
I hope you are right, but this is a good time for me to go check on the IRS site.[/quote]
If your AGI is >$150k, you cannot offset use your rental losses to offset your W2 income if you are not considered a real estate professional…The only benefit is you can zero out your rental incomes if you have more than one property.
For folks above $250k, you get hit with other things both at the federal and state levels (not related to rental income alone) but with taxes related to income in general… (The state threshold is $340k if your are claiming head of household)…
Namely,
1) Medicare tax surcharge on unearned investment income (3.8%) for AGI’s above $200k(single/HOH) and $250k(joint). This applies to stock, index, real estate,etc… The exception is the first $250k/500k capital gains exemption from the sales of a primary home is not subject to this surcharge…
2)Capital gains taxes of 20% on AGI above $400k/$450k…
3)The expiration of the holiday tax credit (which applies to everyone) (insignificant for upper income people)
4)California tax increases for folks above $250k single ($340k HOH) $500k for joint -> 10.3% effective tax rate, and 11.3% and 12.3% brackets thereafter…
[quote]
But for the vast majority of Piggs reading this, rental “losses” are used to offset W-2 income, thus lessening the tax liability.[/quote]
I think EP was referring to the majority of piggs don’t reach the $150k AGI threshold… Whether this is true or not is a separate topic of discussion.
These are the general rules for most common people. I’m sure there’s probably other exceptions, if you have more variables to work with (retirement etc). But it probably applies to most people working and earning a W2 or 1099….
What I do think is the case is all else being equal, earned income for amount up to a threshold Y is taxed at a significantly higher rate than if the same income Y is earned from dividends and/or long term capital gains… What threshold Y is is left as an exercise for the reader…
And one more reason why my original statement that W2 is the worst way to accumulate wealth, all else being equal…
