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Tax Strategy For High Earners

High-income earning clients have a tax burden that we have solved by creating a strategy and process to save earnings through a common tax planning method involving,

  1. Cost segregation,

  2. Bonus depreciation,

  3. Active participation in short-term rentals. 

Growth

Here’s How it Works

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  • W-2 income is considered “ACTIVE INCOME” and is heavily taxed, often reaching the highest tax brackets.

  • Rental income is typically considered passive income, meaning it can only offset other passive income (not W-2 income).

  • However, if the high-earner (or spouse) actively participates in managing a short-term rental (example Airbnb), the IRS allows the rental losses to offset “ACTIVE INCOME”.

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How Vacation Rentals Offset Taxes

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  • If the Earner or spouse actively participates in managing a short-term rental, the IRS allows the rental losses to offset active income.

  • To make this work, the Earner (or their spouse) must qualify as a material participant in the short-term rental business. They must meet IRS criteria.

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Example Calculation

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High Income & Taxes Without Airbnb:

   •   W-2 Income: $2,000,000

   •   Federal Taxes (approx. 37%): $740,000

   •   Net Income After Taxes: $1,260,000

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Adding Short term Rental with Depreciation:

   •   High Earner buys a $1,000,000 short-term                rental.

   •   Cost segregation shows $300,000 in first-                year depreciation.

   •   High Earner meets material participation                  rules, making this an active business.

   •   The $300,000 loss offsets W-2 income,                      reducing taxable income to $1,700,000.

   •   Taxes now: $629,000 (instead of $740,000).

   •   Savings: $111,000.

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Free Consultation

Smart Senior Man

Great Tax Shelter for Doctors, Lawyers & all High Earning Professionals

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