The third way that President Trump is able to not pay income tax or as much as people feel he should is by investing and having his income come to him in the forms of passive income. There’s a difference between passive income and active income. Active income is what you get when you get up and you go to your job, you’re actively working the IRS says you put more than four hours a month into getting that income and therefore it is active income. Active income is taxed at the regular ordinary income bracket so usually between 30-40%, somewhere in there before write-offs.  Passive income means you are not as involved in getting that income, less than 4 hours of time spent each month, and therefore it is considered passive activity and it is taxed at a much lower bracket,15% tax bracket.  

If you have passive income coming in you’re already reducing the taxes, but then all the write-offs from your real estate, or investments like with American Made Home Solutions multi-family syndications, you get to participate in all the write offs and you could potentially have carryovers because the depreciation on a multi-family property is much greater than just a single-family home. 

Yes it’s still spread out over 27 years, but there are ways that it can be accelerated through cost segregation strategies. It is a much larger number for multifamily, if you think of the depreciation on one house and it might only be a thousand dollars a year but now you have a hundred units and it’s still a thousand dollars a year times that by a hundred units and now you have a hundred thousand dollars that you’re depreciating.  That difference can be substantial but even more so if you’re improving properties and getting passive income, now you’re compounding your tax savings and growing your wealth at the same time!

Keep reading next week to find out the fourth way you can save on your personal income taxes!