new investor with high income

Hi All,

My annual income is in the 6-digits and I’m looking for investments that will lower my tax load. I live in CA, and I don’t own any real estate.

My idea is to buy a run down home or multiplex, maybe live in it, fix it up, rent out the other units and then sell it in 2 or more years when the market picks up. The housing market seems depressed right now.

I’m also studying to become a real estate Broker.

I heard that there are $25k tax deduction limits per investment property, but the rules are different for real estate agents? Is this true?

I also read that if I live in the home, I would be more restricted in what I could use for tax deductions. I’m not sure what the rules are if I live in a multiplex and rent the other units out.

What is the best method for reducing my income tax load why turning a good investment?


When I invest I invest to make money. In real estate one of the things you get is tax free income. For example if you buy a house for $100,000 and take out an $80,000 mortgage. You have PITI of around $800/month. If you rent the house for $1,000/month you make $200/month cash flow before taxes or $2,400/year. When you depreciate the house (subtract land) on your taxes you will depreciated it over 27 ½ years. If the house basis is $80,000 then you take $2,900/year off of your taxes. That means you made that $2,400 tax free.

I don’t know the market in California, but in Houston where I am you can buy that $100,000 house for $50,000 and end up with cash flow of around $400 to $500. You buy 10 of them and then you are making enough money to go and get a house to live in instead of living in an apartment.

Your investments should make you money. Favorable tax treatment is only a side benefit. You invest on real estate for the lifestyle. You can earn a sizable income without trading time for money. You want to get to the point where you have the lifestyle you really want without touching the money from your job and then you ask yourself why am I working? If the answer is I love my job then keep working if it is I don’t know I hate this place then quit.

A real estate license is just a license to allow you to do a different job. You want to own not work in real estate.

As Bluemoon points out, your rental income can be tax free in the right circumstances. However, if your six figure income exceeds $150K, rental property ownership will not reduce the lax liability on your W-2 income.

Maybe I’m pessimistic in my projections, but my property evaluator spreadsheet would show around $0 cash flow if I had a PITI of $800 and a rent of $1,000

the only way real estate reduces your other tax load is if you hit the “sweet spot” where you have a tax loss and positive cash flow. In practice this is difficult to achieve.

there is no magic answer to paying lower taxes. Well, in your case, moving out of CA.

focus on positive cashflow. then you’re winning no matter what the tax man does.