How Contractors Legally Use Real Estate Losses

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If you’re a contractor earning $300K+ and investing in rentals, there’s something you need to understand:

Rental losses are passive by default.

That means they do not offset:• W-2 income• S-corp income• Active construction profits

Once your income exceeds $150K, the small passive loss exception disappears.

But there’s a powerful strategy: Real Estate Professional Status.

It’s not a license.It’s not a job title.It’s a tax classification.

To qualify:• 750+ hours per year in real estate activities• More time than any other trade or business• One spouse must qualify individually

If structured correctly, rental losses can offset active income.

Example:$120K in real estate losses at a 40% tax rate = $48K in tax savings.

But this only works with:• Proper hour tracking• Material participation• Correct elections

Buying rentals isn’t the strategy.

Structuring them correctly is.