The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 127 - The Hidden Limits to Tax Deductions (and How the Wealthy Work Around Them)
You’ve heard the stories: jets written off, million‑dollar refunds, zero taxes on millions in income. But are those strategies fundamental? And more importantly, do they apply to you?
In this video, Mark Perlberg (CPA + Tax Strategist) breaks down the truth about these “too good to be true” tax moves. He pulls back the curtain on deduction limitations, capital loss traps, passive vs. active income strategies, and how the wealthy legally reduce their tax bills, sometimes to zero.
You’ll learn:
• Why many tax hacks don’t apply to W‑2 earners
• The $630,000 business loss cap (and how to use it)
• How high earners stack real estate + charitable + credit strategies
• What most tax pros miss about timing, phaseouts, and AGI targeting
• Workarounds for SALT deductions, basis limitations, and more
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00:00 - Why You’re Here (Jets, $0 Taxes & Big Claims)
00:22 - Truth Bomb: Why It Doesn’t Work for You
00:40 - What Are Deduction Limitations?
01:30 - What You Can & Can’t Deduct
02:22 - There *Are* Legal Strategies
02:44 - Free Checklist & Custom Tax Report
03:30 - The $630K Business Loss Cap
04:56 - W‑2 vs Real Estate Write‑Offs
06:03 - Real Estate Capital Gains vs Stock Losses
07:12 - Charitable Deductions: 60% AGI Rule
08:15 - How the Wealthy Give & Win
09:56 - Qualified Business Income (QBI) Deduction Explained
11:14 - High Earners? Why You Lose QBI
12:32 - State & Local Tax Deduction (SALT Cap)
13:27 - Bonus Depreciation & State Misalignment
13:48 - Entity Structure & Basis Limits (S-Corp, Partnerships)
15:37 - When You Can’t Use Your Losses
17:12
If you come to this video, you've likely been intrigued by all these ideas of folks you may have heard writing off their jet full$4 million deduction in year one and getting million-dollar tax refunds and paying zero dollars in taxes, even though they make millions of dollars. And all these entrepreneurs who pay nothing at all in taxes. Well, I'm about to bust your bumble a little bit here and tell you that in a lot of instances, a lot of these examples, and some of them may be legit, but they're taking it out of context and they likely will not apply to you. And there's a good chance that if you try to do these, you might find yourself very disappointed by the outcomes to you. Another thing I want to share with you here is that there is a solution and there are answers here. And how we can maximize and optimize our deductions. And what we're going to talk about today is what are these deduction limitations? What are these limits on what we can deduct and how much we can deduct against different types of income and what kinds of deductions? And what we're going to drive through today is what are these deduction limitations and how much is a maximum amount we take, whether it's against our business or W-2, our capital gains, and what are some other tax deductions that we like to see, and how are those limited? What's the limited amount of tax deduction that we can take from some of these losses that we're going to go and other types of tax deductions here? And then at the end, by the end of this conversation, you'll have a good understanding of what I'm talking about. What are the restrictions and limits? And you may find that some of these sexy, flashy, shiny objects that are showing up in your threads and your reels may not be as impactful as you'd like. Now, for some of you guys listening, you may be able to use them and you'll understand why. But we're also going to learn by the end of this what are some strategies, what are some real action items we can do as maybe some workarounds or when we're acknowledging these limitations on how we can use these write-offs and limitations where we're when we if we understand the law and these rules, how can we be strategic and find these workarounds as these strategies to maximize your savings and actually use these deductions in spite of all these limitations on how much tax deductions you can take in a certain year and against different types of income. Now, before I jump into this, one of the things I'll say here is if you find this to be too confusing to you or too overwhelming, I suggest you can get a few things here. Now, if you want to get an introductory course on just some basic tax pluton to see how it may apply to you, go to taxplanningchecklist.com. You'll receive a series of emails and videos and demonstrations to get you acclimated to the most domestical concepts of tax putting. And if you are eager and you know the stuff applies and you know that you need help, I will give you a free opportunity report. I will file, I will film a video for you based on the information you have provided for me illustrating what may be possible with our services and how it beats tax splitting and potentially reduce your taxes. Just go to Prospero CPA, that's Prosper within L, CPA.com slash operating report together. Now let's get into the information. Let's get into the good stuff. So first thing I want to touch on, and this is gonna be really important for you, high W2 earners, and there's other people as well here. Let's talk about the excess business loss limitation. Yeah, this is the one that's gonna really make things not fun for you guys if you're high in W 2s. And we work with lots of high W2s. So if you have a high W 2, the maximum amount of business losses that you could take against your W2s is gonna be$315,000 if you're single and$630,000 if you're married filing joint in 2025. Now, if you're listening to this after 25, that amount is gonna go up a little bit by year by year by year to adjust for inflation here. And essentially what this excess business loss limitation says is if you're gonna create a business loss, the maximum amount of that you can use to offset non-business income. And for most of our clients, that's gonna be their W2s. They may be a capital dean of it from some stock or interest income, but most often we find this to be W2. That's the maximum amount you can use again. Now, again, that is gonna be 315 if you're single and 630 if you're made filing jobs. And why does this matter? So if you haven't been introduced tax money yet, there's all these really impactful ways that we can create massive write-offs that can offset your W 2 if you're a high income earner. Now, a lot of people may think, hey, I'm a high W-2, I'm stuck, all the money just comes out of my taxes, I don't get write-offs. Well, that's not necessarily true. And we've worked with hundreds of W-2 earners to find businesses and investments that give them business losses and a highly tax advantage we have. And depending on what your goals are, you know, the real estate is always a fantastic way because it gives us access to depreciation. And we can you this is very popular to short-term rentals or real estate professional tax status where your spouse is full-time in real estate. But there are other ways as well. It may involve investing into oil and gas, and we also helped our clients uh facilitate the relationships to create other businesses that give them access to depreciation with heavy assets and maybe even some tax prints along the way. But, anyways, the maximum amount that we can use is to offset that W 2 income is going to be subject to those limits. And also for some of our clients where they have a really substantial capital gain event, maybe a cryptocurrency gain or maybe a stock gain that they've been holding forever, those limits still apply. And that can be pretty painful. Now, when we have capital losses, those can only offset capital gain events with the exception of$3,000 per year ordinary income. So let's say we have a$6,000 deduction of capital loss, we're gonna be able to deduct three of it against our ordinary income this year, and then another three the following year, it'll carry forward uh indefinitely to offset your ordinary or your other sources of income here. So not a lot of meat on the bone if we have capital loss. However, if we have real estate capital gain, and most often when we're selling real estate, we do if it's not primary residence because it's just the natural inflation, not always. You can use your capital losses from stocks to offset your real estate capital gains. You can still net the two. Now, you can net all of your capital, your portfolio income against all of your real estate, but certainly you can do this with capital events. And now let's talk about charitable tax deductions. Now, as I go into this, if you are not familiar with the stuff we do with our clients, you may think, well, why does this matter? These are such high thresholds. Who's gonna have to come up with the money? Well, hang in there, Sam. The maximum amount of terrible deductions you can take against your income also has its limitations. And those are limitations based on your adjusted gross income. For most of you listening, your adjusted gross income is the combination of your income sources. So that's the combination of your W 2, your portfolio income, your stocks, your interest, dividend income, etc. etc. etc. Or business income. So when you have a cash donation, the most you can deduct is 60% of your adjusted gross income. So there are instances where we try to max out our clients' tax deductions on the charitable side by creating a cash charitable deduction that offsets 60% of our income. And we have legitimately had clients making a million dollars and up, creating charitable deductions as high as$600,000,$1.5,200 million in cash deductions. How do we do it? There's all sorts of sophisticated structures that allow us to access that cash in a way with timing that allows us to create an immediate tax deduction, even if the cash is not out of pocket right away. Non-cash deductions. Most timing you may see these be stocks and appreciating assets. Um and what the most you can deduct against your income if you're doing a non-cash charitable deduction is typically going to be 30%. Or we can also use some ordinary income property to offset as much as 50% of your adjusted growth. And we could also, in some instances, with certain easements, we can offset as much as 50% of your income. Again, you may be thinking to yourself, I've been half a million. How am I gonna donate something that's gonna be worth that much? Well, maybe you do have appreciated stock and you see the value there, but there are also, and some of these things we won't touch, by the way, but there is a whole world of opportunities and promoters and facilitators. Some are more legit than others, and they're gonna give you the opportunity to purchase assets that you can donate to offset 30% of your income. So a lot of times you don't have to put 30% of your income down. So a lot of times the purchase price is gonna be less than the value. Now we're not promoting anything, and a lot of these things that we see, we pass on them because we say this is just a little too sketchy. But sometimes folks are in compliance of the law and they will spend less than 30% of their of their income to get a deduction that offsets 30% of their income or 60%. But you cannot wipe out all of your income with a charitable deduction. And now there is the co-pine business income tax deduction. And I spent hours on this, and I'm not going to be trying to this is multi-faceting that most of our audience is gonna be a little overwhelmed if we did, and I'd probably lose you. So I'll tell you this for those of you, it's either being a 20% deduction up to around 400,000. It's 394 for a million finding single, and sorry, for a million finding joint and half of the amount of your single, you write out 20% of your business infel in most situations. As long as your is your real is your training of business income as defined by the IRS. Um, now what happens here, however, is as your income exceeds those thresholds, you start to see certain phase outs. Now, if you are in a uh you what we would call a specified service trader business, so a lot of you physicians, doctors, dentists, lawyers, attorneys, accountants, a lot of you white, I would say mostly white-collar type of roles, you start to lose that deduction. So the amount that you can actually use, even though we say 20% of your income, it starts to just go away as your income increases between around 400 and 550, or 394.60 we'll consider. And so there's a across, it also gets phased out across a$75,000 limit based on once your income exceeds$197,300 if you're single. Now, if you're not one of those white-collar specified service for carrier businesses, when you exceed those amounts, the amount you can deduct is also subject to other factors that are gonna involve your W2 income or the assets you have in those businesses. But there's all these moving pieces in these formulas where if you make more money, you uh you get phased out. If you make less money, you don't make it enough to have it as a percentage. It's just not that much of a deduction. So it's a pretty are it's a pretty um complex uh set of rules here. And you know, I had a whole webinar I just did or YouTube video I just did on this call use it or lose it deduction. This is also the podcast. Tell me about the phasing in outs, ins and outs of deductions and credits where if you make too little, you don't get it. If you make too much, you don't get it. So we're really trying to target that sweet spot. Let's talk about our state and local tax deduction. Now, this is something that a lot of people begin very upset about, especially in New York and California. The maximum amount that you can take is an itemized deduction against your income, your federal income for your state and local tax,$10,000. Doesn't that kind of stay? So a lot of folks in California, New York, and other places where you're paying a lot of state taxes, and also property tax and local tax. In the past, before tax cuts and jobs act, you can deduct all that against federal and you would drive down your federal taxes. So even though you're paying a lot of state taxes, at least it reduces your federal tax. That's not really the case anymore, enforcement. We'll talk about some solutions and workarounds for that in a little bit here. And also, I want to touch on this a little bit here. So a lot of you get really excited about bonus depreciation being back, right? You can grab your jets and your gene wagons and your trucks. Well, guess what? Most states don't conform, uh, they're not gonna give you that full hundred percent. They're gonna they're gonna have their own rules on how you can write off those assets that qualify for bonus. So you may get a little bit of a write-off year after year after year. And the other thing I want to talk about here is basis limitations. So if you this is gonna be in particular important to those of you with S corporations, and a lot of you don't really understand the complexities of tax basis, um, this is also gonna apply for some of you who have partnerships. So essentially to say this in the most simplified manner here, and for those of you purists, I apologize if this is not accurate enough for you, but I'm trying to reach the entrepreneurial audience here. So if you have your basis in your entity, is gonna be really the combination of what you put into it and what that company has earned. So if I took, if I start my S corporation with$100,000 and it makes$100,000 profit, it now has$200,000 in basis. If I were to pull out of this S corporation more than that$200,000, or this could be true with a partnership, finally find that I'm actually taxed on the amount I take out in excess of that basis of what has been put in and what has been earned and grown over time. And this can be really challenging when you have S corporations because a lot of the times you take on debt and that gives you more cash. And then you take on, but the problem is with that, is when you have an S corporation, you have cash in the company, but you don't have the basis. So when you pull it out, you may find that you're pulling out more than that basis. So let's say I have zero dollars in my S Corp, I borrow a million dollars, I take a million dollars out. That's the normal result in a million dollars tax capital gains amounts. Wouldn't that be rough, right? So you want to be aware of basis as it relates to the money that you take out of your S Corporation. Now, this is also true for partnerships. It's less problematic. And for those of you listening who are concerned now because you have real estate, you're like, how am I taking all these losses and it's more than I put in it? Well, when you borrow money in a partnership, it gives you basis. So let's say you put half of$100,000 to buy a$1 million property, and then let's say you get a loss on your K to one of$200,000. In this example, you would be able to still use the loss because you're borrowing money that actually gives you basis as a partnership. So we don't stress about basis as much with partnerships, but this can be very problematic when we want to take deductions in excess of what we put into it. It can limit what we can actually deduct over time. So that can be very challenging. And then essentially, so let's say we put 100,000 into an S corporation that we actually, because we're borrowing money, we have a loss of 200,000, but our base is only 100,000. We can only deduct that full hundred thousand, and the rest of the losses unfortunately carry it forward until we can use it. I hope I didn't even lose you talking about basis and losses. Most of you guys probably don't want to hear me talk about it, but all you need to know is that if you're taking losses from your company, there may be basis restrictions that may disallow those losses or portion of those losses. Now let's talk about some solutions here. So I just talked about all the complications here where you're not allowed to offset 100% of your W2 income, your cap gains. You know, if we're trying to use ordinary losses, and this is in particular to those of you looking for real estate. Let's say you're trying to use your real estate losses to offset your stock cap gains or your retirement cleaners to liquidate your stocks and use your real estate to offset it, you're gonna find some challenging situations here. So let's talk about some strategies and workarounds and how we can fix this up. Timing of timing is everything, and I'll set off say this time and time again. All these sophisticated fancy things that you see, a lot of the times, it's all just different ways to time events. And when it comes to overcoming these challenges and limitations on how much we can write off, we also want to think about timing here. So let's talk about this. We can only deduct, remember, I said we can only deduct 315 or 630 against our W2. So if we are buying lots of real estate and we have the real estate professional stack status, or we're doing short-term rentals, what we can do is we can time the cost segregation and the depreciation, so we don't use it all at once, right? We want to use it to the point where we're not exceeding that excess business loss. And this is really important, especially for real estate. The one thing I need to talk about is with access business loss limitations. If you take a business loss to offset your ordinary income or XR, your W2 or Cat Gains income, and let's say you use more than you can. So let's say we have a$1 million deduction against our W 2. Well, if it's a business loss, like we're renting out so formal or some other business that we have that gives us a building loss. If it's a business loss, the next year that ordinary business loss will carry forward and offset the W2. So not all those locks. So roughly$370,000 will roll forward and offset your W2 the next year. Assuming you have ordinary some form of W2 or ordinary income. Now the challenge is with real estate, whether we're taking real estate losses or short-term rental losses, those losses, if you don't, if they exceed your excess business loss, so anything that is beyond what you can use is gonna carry forward. But the nature of those losses can revert back to passive. What I mean by this is let's say we're super excited, we create a million-dollar real estate loss offset in W-2. We're so excited about the losses. Well, that sounds fine and Danny, but the challenge you're gonna find here is if you are strategic and your CBA doesn't understand these rules, and how they carry forward, you're gonna see$370,000 of losses that carry forward. And when they carry in towards the next year, they're not gonna offset you your income in the next year. They're gonna revert to passive losses, meaning those unused losses that exceeded what you can use, they're not gonna be very useful in the future. Unless you have profits that are passive in real estate or real estate cash. Yeah, doesn't that stink? She went through all this work to pay for the costing, create massive losses, and now in the future, you're not even gonna really be able to use them very well. In fact, I was saw a guy trying to deal with IY his own tax plans, and because he thought it wasn't worth paying for anything, he just and cost that was a good idea. He paid someone to run some cost eggs, made about a$600,000 induction to offset his W to offset his income. Well, in this example, he didn't have real estate professional tax status, so it was just a passive loss. And the next year he had rep status. Well, guess what? The passive loss carry for James Duke, anything for him. So really bone-headed mistake by someone who didn't feel like he needed to invest into the expertise of a tax professional who knows tax play. Now, some other things we can think about here is when we time this is timing our losses and also thinking about how we can get you into where we can optimize those write-offs and putting us into that salty sweet spot, right? So we know we can't use all the losses in year one. What's the best sweet spot where maybe we can create some additional write-offs here? And I'll talk to you a little bit about that here. So when it comes to the state and local tax deduction, where we said we can only deduct 10,000 against federal. Well, if your income is below$500,000, we can actually deduct$40,000 against federal taxes. So there might be some ways here by considering some strategies, we can drive your adjusted gross income to below$500,000. And now you can use those state deductions, even you're pulling an extra$30,000 state level tax deductions to offset your federal. And then there's another even more powerful workaround for those of you who are business owners. If you can, in most states, if you're paying state taxes, you can actually pay your state taxes through your entity or a portion of it, and that gives you a workaround where you're writing up the taxes at your entity's level and you're getting the write-off to offset it on the federal side. This is very powerful for our clients in California in particular. And even in other states, we've seen it five figures of tax savings created in North Carolina, South Carolina with our clients. So really amazing subs through any tax elections, which are really a workaround to wrap more than 10,000 state taxes against federal. If you don't know if you're doing this or you're not sharing really this is just low-hanging fruit, it's a free write-off pretty much because you're already just paying the tax. So make sure you're at least considering this. Now, for those of you who are high-income earners, um, you may even consider um evaluating your entity. Now, um, some other things we could think about here. Um, when it comes to stocks, back to the excess business loss limitation. If we have stocks, we know and we want to use real estate or business loss to offset our stock cap gain, which is comes back to timing. So, what we can do here is let's say we have a million dollars of stock gain. Well, we know we can't offset a full million new business losses. Okay, we can time the cap game events. So if we're married, filing joint, we can offset 500 in one year and 500 in another year. If we're selling, we can do an installment sale, or we can even do a qualified, let's say we can't control the timing very much. Well, guess what? Qualified opportunity zone fund. You're gonna defer the game. You can put some of that gain into a qualified opportunity zone fund, so it'll be recognized in 26. Now, if you're listening to this in 26, you can't do that. But if you're listening to this in 2027, you can do it again. So it'll be revived in 27. Don't you love all the moving pieces of this? And again, this just goes to show you how a lot of our guidance, if you're not working with a close per closing with a professional, some of this could be taken out of context. Um, so some other things to consider here spin-off entities and additional entity structures that can not only give you asset protection, but give you additional basis uh in that QBI deduction because of the treatment of the different types of income. Um by the way, another thing I didn't mention here is you need to say that you are at risk. So let's say you invest possibly something that creates a massive loss. Uh a lot of the times, now there is you need to say, now there's some some exceptions with real estate that make it really easy, but we need to say that you have putting yourself at risk. So there's an at-risk limitation to your deduction as well. So if you're not taking on a loan that's at least what we call with recourse where you're personally viable, you're not gonna be able to use those losses. Sure. Unless you're but however, with work again with real estate, you have these non-quality up what we call qualified non-recourse debt that we can actually use. Now, another thing we can think about here is another what we what may some people may call a workaround is there are ways if you lead debt in your escort or you find yourself in a rough spot because of those debt limitations, you may find that there are ways that you can potentially do some loans yourself to your entities that'll allow you to actually use your escort losses in spite of these debt basis limitations that I was touching on earlier. Now here's how you now one of the things that I really want you to think about now, because I just kind of was a bit of a buzzkill here talking about all these limitations. If you're worried about only being able to deduct, and pay attention to this, this is maybe the most important part of the conversation. If you're in a high income bracket, let's say you're making a million dollars a lot and you're in your W-2 and you're just getting crushed with federal estate taxes, then you're concerned that you can only take a 630 or a 315 deduction here. There, this is why you really want to move to an advanced level of tax planning because uh you really want to consider the stack of strategies. Tax planning is never gonna be one idea. I love real estate, I love these basic depreciation strategies and oil and gas, they can give you little losses. But as you can see, there are limitations. And we can, however, we can overcome this if we consider a combination of strategies where we're not just using business writers, we're using advanced shareable deductions that can offset an additional up to 60% of your adjusted gross income. So maybe you start start with 2 million, you take a 630 deduction, now you're down to like uh around 1.4 or 1.37, and then you can create another terrible deduction to offset the remaining 60%. And we can also layer that in the credit strategies in Georgia, we're helping our clients buy some tax credits, being 90 cents on the dollar. Not life-changing, but certainly you're paying a lot of state taxes, that could be a nice little win. And also, if you are doing certain projects with solar, you get a tax credit that can offset up to 75% of the taxes that exceed 25,000. So close to 75% of your taxes that you can't wipe out with your shareholder, that you can't wipe out of your business loss, that you may be able to use with investment tax credits with solar. So there's all these opportunities when you combine strategies and when you understand the law and you understand the time, and you're working with the right people, then you can uncover, you can, you can you can overcome these deductive limitations and really wouldn't tax game and prevent all your money from going to the government because I know you work hard for your money. So, again, I hope this helps to give you an understanding of how complex and challenging the tax clinic is with these limitations and why you can't really take all these fancy, sexy ideas, or even ABI talk about it face down again because you really need to help an expert here. Uh, but please continue listening. I want you to check out my W2 playlist. That's been really popular, especially when we talk about excess business loss limitations. We also have a lot of chat games videos as well. Um, and again, if you want to talk to us and see how our strategies can help you and get a free projection of how how we can help you, what that means for you, just go to tell prosperous cpa.com slash opportunity reporting. Have a wonderful day.