Individual Economics in the Age of COVID-19

[Melkerson]

@MrWookie

I honestly think high-earning wage people should be pissed about the tax code. They are the ones actually paying the highest percentage of their income as taxes, in contrast with the super wealthy who, via clever combinations of capital gains rates on any realized income, unrealized gains going untaxed, and loss harvesting via bullshit real estate depreciation or whatever, make out like bandits.

Yeah, I agree.

If Wookie writes that piece, he might even make her seem not horrible.

[Riverman]

I’ve said this before but I see tax returns of obscenely wealthy people and most pay zero tax. Not a little. Zero. It’s fucking outrageous. The doctor making $1 million pays like $350,000 more in taxes than the failson whose dad gifted him shares or whatever. Most people have zero idea this is happening.

[anon38180840]

@Riverman

I’ve said this before but I see tax returns of obscenely wealthy people and most pay zero tax. Not a little. Zero. It’s fucking outrageous. The doctor making $1 million pays like $350,000 more in taxes than the failson whose dad gifted him shares or whatever. Most people have zero idea this is happening.

They’re just never realizing gains on anything and not drawing salaries, right? They pay interest rates instead of tax rates?

[Riverman]

Depreciation.

[Krayz]

I have a large percentage of my salary in RSUs. My RSUs automatically get tax pulled out at vest. I fill out a standard W4 (single no dependents). I keep getting short at tax time by 25%. I guess something isn’t getting calculated right on withholding and I should just manually increase, but it is strange. Confirmed with someone else at my company it happens to them too.

[anon38180840]

@Riverman

Depreciation.

Lol wow, so they’re basically just writing off their assets to match their earnings and netting out zero year after year?

[mosdef]

Well, they’re not doing it. Accountants are doing it. These people can barely tie their shoe laces. 'Merica.

[JonnyA]

I think the issue is that for special payments like this, the withholding is often way too low as it doesn’t take into consideration your regular earnings. Your normal withholding will be based on your regular income, so the withholding for the extra income should be based on your top marginal rate, but I think it’s often not calculated this way. I had the same issue when I used to get a decent portion of my salary as a bonus.

[DUCY]

happened with us when dealing with RSUs too, the first year was real fun

[Melkerson]

@Riverman

Depreciation.

An acquaintance of mine has managed to harness the power of depreciation to offset his W2 salary. Here’s the playbook

1. Buy a fuckton of investment property (this takes a while).
2. Have spouse become a “real estate professional” and manage the properties.
3. He offsets his mid six-figure income against the depreciation of the property. Not sure if he is able to get all of his withholding back, but it is definitely a large amount

At least that is how it was explained to me. I assume you can confirm that if it it would work or not.

[DUCY]

This sounds amazing if it’s feasible and doesn’t require like 10 million in investments or something. My wife will be making very large sums of W2 money for a long time and I don’t make that much so it would definitely make sense to put me in the property manager role. Does the wife actually do anything or do they pay a management company to handle stuff?

[Melkerson]

@DUCY

This sounds amazing if it’s feasible and doesn’t require like 10 million in investments or something. My wife will be making very large sums of W2 money for a long time and I don’t make that much so it would definitely make sense to put me in the property manager role. Does the wife actually do anything or do they pay a management company to handle stuff?

She does do some stuff, but a lot of the management is outsourced.

I think one of the keys is that she has no other job. She also got whatever certifications are required to become a realtor.

[MasterofthePwn]

I don’t get it, how does having your spouse “manage” the properties allow you to take depreciation you otherwise couldn’t take?

[Melkerson]

@MasterofthePwn

I don’t get it, how does having your spouse “manage” the properties allow you to take depreciation you otherwise couldn’t take?

@Riverman, you wanna take this? Anyone?

I don’t even know if it works, I’m just reporting what I heard.

It think that if she wasn’t a real estate professional, then there would be a cap on how much depreciation could offset his W2 income each year (rest would be carried forward to future years). But if she is a pro, then there is no annual cap. I think.

[anon38180840]

So how do they buy appreciating assets and claim depreciation? Lol fuck you applies here, I assume?

[Melkerson]

@anon38180840

So how do they buy appreciating assets and claim depreciation? Lol fuck you applies here, I assume?

Once again, I’ll defer to Riverman here, but it’s totally kosher for rental properties.

Real estate often consists of the land and the building(s). The land appreciates, but the building depreciates. There is not much argument on that.

[anon38180840]

Makes sense. Google says that you can only offset W2 income up to $25K a year this way and only if you’re an active participant in the business, which is why his wife is probably managing it.

[Melkerson]

@anon38180840

Makes sense. Google says that you can only offset W2 income up to $25K a year this way and only if you’re an active participant in the business, which is why his wife is probably managing it.

I guarantee he is offsetting more than 25K. Far more.

[Melkerson]

Here’s where I think you might be off

IRS puts real estate investors into three categories for tax purposes.

• Passive Investor . This is the default. A passive real estate investor can only deduct passive losses against your passive income.
• Active Investor . This category allows you to deduct an additional $25,000 of your real estate losses against your ordinary income. But this deduction phases out when your Adjusted Gross Income (AGI) moves past $100,000 as a single individual or at $150,000 for a married couple filing jointly. Getting active investor status is easy. You just need to be involved in making decision about your real estate investment. You are not required to make a special election on your tax return.
• The Real Estate Professional status is the third category. There are many people who hold a number of rental properties and benefit from making this special election on their tax return. As a result of the REPS, they are able to claim thousands of dollars in tax deductions at the end of each tax year.

You’re thinking about the second category. I’m thinking about the third.

[anon38180840]

Ah ok so maybe they’re both filling as real estate professionals. But eventually when they go to sell the properties, their basis becomes the depreciated amount right?