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What if I told you that you could generate passive income by owning real estate properties for a fraction of the cost it takes to buy a rental home?

Fannie Mae defines Multi-family affordable housing as “Eligible properties are those that participate in the Low Income Housing Tax Credit (LIHTC) program, are encumbered by a Housing Assistance Payment (HAP) contract or participate in the Section 8 program (either through vouchers or direct payments).

Over the last 30 years HTC and its partners have acquired more than 7,000 units nationwide. A custom portfolio of geographically diverse Multi-Family Affordable Housing properties can provide 2 major benefits. First, it allows you to keep more of your hard earned income. Secondly, generating cashflow opportunities as the mortgages mature. Affordable housing projects can accomplish your goals whether you make $100,000, $1,000,000 or more. HTC proudly works alongside your current accountant as we collaborate to strengthen your financial future. HTC also understands not everyone will qualify for this program. However, it’s important to let one of our trained professionals determine eligibility.

The IRS has strict guidelines for Passive income. To qualify as a ‘Rental Real Estate Professional’ for tax purposes, a taxpayer, or their spouse, must meet a two-part test: (1) the taxpayer must spend the majority of his or her time in real property businesses, and (2) the taxpayer must spend 750 hours or more in the real property business and rentals in which he or she materially participates.

What is passive income?

Passive income is derived from any business activities in which a earner does not materially participate. The most common passive income generators are rental properties or a Limited Partnership where an individual is not actively involved.

The IRS uses three categories to classify real estate investors: 

1. “Passive Investor” this allows a taxpayer the ability to deduct passive losses against passive income. It can also be deducted against active income depending on the nature of the taxpayers daily income generating functions.

2. Second, is that of an “Active Investor”. This designation allows a taxpayer to deduct an additional $25,000 of losses against ordinary income, however, this deduction phases out completely at the Adjusted Gross Income (AGI) level of $150,000 for a married couple filing jointly and $100,000 for a single individual.

It’s often a surprise to our clients to understand how easy it is to qualify for this classification. A taxpayer must simply be involved in the decision making for the real estate investment.

3. Third, is the “Real Estate Professional” which classification allows taxpayers to deduct 100% of all real estate losses against ordinary income. Many clients making this special election on their tax return, and who also have several rental properties can create thousands of dollars in tax deductions resulting in a zero tax liability at the end of the year. 

What is active income? 

For perspective, active income is any income that’s earned for performing a services, such as wages, tips, salaries, etc. where an individual actively participates. This is by far the most common income businesses or individuals generate. 

Business professionals spend countless hours trying to figure out how to generate more passive income. Or convert active to passive. Many real estate professionals and business owners are looking for passive loss deductions to reduce their taxable income. This is typically accomplished through depreciation of currently held assets or higher expenses, but what happens when they run out? What happens when you’ve kicked the can down the road? Contact HTC today to receive a 100% free consultation.

IRS Circular 230 Notice: Any U.S. federal tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding U.S. federal tax penalties or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

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