In one of this guy’s YouTube videos he says a well-run real estate operation should result in nearly tax-free income. I’ve been extremely skeptical about that, so I’ve been reluctant to scale my real estate land-lording to a bunch of units. This article reports my personal experience, and the result is that, yeah, the YouTube rando was right. There’s effectively no tax burden in my current situation as we will see below.
|Year||Household AGI||Effective Tax Rate|
As you can see, my household income went up but my effective tax rate was lower than it had been in years. I also got a tax refund for the first time in years.
It’s important to note that I didn’t simply add ~8k of rental income. 2018 included a signing bonus of about 15k, and that was replaced with rental income in 2019. So I was able to reduce my tax rate by actually increasing my share of income attributable to landlording relative to the day job.
Based on this experience, I definitely continue to support investing in real estate. I also really support house hacking. It’s common knowledge that house hacking is a great income earning strategy, but I now realize that it’s just as good or better than regular landlording for tax purposes. With house hacking, you can divide your property into a self-owned portion and a leased portion and depreciate and write off a share of many of the regular expenses of the house.
As a last note, I do recommend you consult a tax strategist for 3+ properties. I had a great experience with Shoff Accounting. Check with your CPA, but it’s likely that tax strategy can be written off as a business expense. It doesn’t really hurt to get a consultation while you own fewer properties, but there just isn’t much strategy to be had. TurboTax Live Deluxe is also suitable for 1-4 rental doors in my opinion.