Your Tax Strategy Playbook for 6-Figure W-2 Earners Investing in Real Estate

Euna Jee • September 16, 2019

Step 1: Choose the Right Entity Structure

Your LLC might protect you legally—but it might not be doing anything for your taxes.

For W-2 earners investing solo:

  • Stick with disregarded single-member LLCs if you're just starting out. Easy reporting, limited complexity.

Want active participation + tax savings?

  • Consider an S-Corp for flips or RE-related service income
  • Pair LLCs with living trusts for long-term rental holding and legacy planning
  • Set up separate LLCs for active vs passive income (e.g., Airbnb vs rental property)


 Step 2: Use Depreciation Like a Weapon

Depreciation is your #1 tax shield. But most W-2 earners don't leverage it fast enough.

Do this:

  • Order a cost segregation study for new or recently renovated properties
  • Stack it with bonus depreciation while it's still available (phasing out after 2026!)
  • Offset passive gains and potentially eliminate taxes on rental income for years


Step 3: Short-Term Rentals = Big Loophole

Can’t qualify for Real Estate Professional (REP) status?
Use the
STR Loophole to write off rental losses against W-2 income—no REP required.

To qualify:

  • Average guest stays ≤ 7 days
  • You materially participate (100+ hours minimum and more than anyone else)

Use this to:

  • Deduct STR startup losses
  • Apply bonus depreciation immediately
  • Offset income in high-earning years


Step 4: Layer In Retirement + Real Estate

Want more write-offs? Combine your job and real estate with tax-deferred investing.

  • Open a Solo 401(k) if you earn 1099 income on the side
  • Use a Defined Benefit Plan if you’re nearing retirement and want to shelter $100K+
  • Invest through a self-directed IRA into your own rental or syndication

This is how W-2 earners turn real estate into a retirement powerhouse.

Step 5: Don’t DIY This

W-2 earners are often high audit-risk when claiming aggressive deductions without strategy. Common mistakes include:

  • Mixing personal and rental expenses
  • Not tracking material participation properly
  • Failing to file late elections like 3115 (for cost seg) or Form 8275 (REP grouping)


Want to build your personalized tax strategy playbook?

Book a free call and we’ll map out your best moves for 2025 and beyond.

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