http://totallypassive.com/752/what-is-the-tax-difference-between-w2-income-and-passive-income-from-real-estate/ Passive income ideas for multiple streams of passive income Mon, 07 Dec 2009 15:00:27 +0000 http://wordpress.org/?v=2.9.2 hourly 1 http://totallypassive.com/752/what-is-the-tax-difference-between-w2-income-and-passive-income-from-real-estate/comment-page-1/#comment-16 botygy Fri, 06 Nov 2009 11:16:18 +0000 http://totallypassive.com/752/what-is-the-tax-difference-between-w2-income-and-passive-income-from-real-estate/#comment-16 W-2 income is earned income, passive is not. As it is not earned income, it would not be subject to FICA and Medicare. W-2 income is earned income, passive is not. As it is not earned income, it would not be subject to FICA and Medicare.

]]> http://totallypassive.com/752/what-is-the-tax-difference-between-w2-income-and-passive-income-from-real-estate/comment-page-1/#comment-15 the tax lady Fri, 06 Nov 2009 06:42:28 +0000 http://totallypassive.com/752/what-is-the-tax-difference-between-w2-income-and-passive-income-from-real-estate/#comment-15 Year to year rental income is taxed at the same tax rates as wages. So if you are in the 28% tax bracket, the tax is 28% whether it's from wages *or* real estate. However, real estate doesn't kick off huge amounts of income. One of your legitimate expenses is depreciation. If you don't have tenants for a few months, you often wind up with negative income during the early years (which is limited to $25,000 of loss against other income and the rest is carried forward) and a huge spike in income the year you sell the property. When you sell, the depreciation is paid back at ordinary income tax rates (28%) and the capital gains at the long term rate (15%). Year to year rental income is taxed at the same tax rates as wages. So if you are in the 28% tax bracket, the tax is 28% whether it’s from wages *or* real estate.
However, real estate doesn’t kick off huge amounts of income. One of your legitimate expenses is depreciation. If you don’t have tenants for a few months, you often wind up with negative income during the early years (which is limited to $25,000 of loss against other income and the rest is carried forward) and a huge spike in income the year you sell the property. When you sell, the depreciation is paid back at ordinary income tax rates (28%) and the capital gains at the long term rate (15%).

]]> http://totallypassive.com/752/what-is-the-tax-difference-between-w2-income-and-passive-income-from-real-estate/comment-page-1/#comment-14 wartz Fri, 06 Nov 2009 00:20:05 +0000 http://totallypassive.com/752/what-is-the-tax-difference-between-w2-income-and-passive-income-from-real-estate/#comment-14 Income reported on a W-2 is earned income because it is received in exchange for your service. Similarly, profits from operating a business are earned income. Passive, or unearned income, is income generated from capital like rents or interest. Income reported on a W-2 is earned income because it is received in exchange for your service. Similarly, profits from operating a business are earned income. Passive, or unearned income, is income generated from capital like rents or interest.

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