Mia and Jay's wealth plan: $90,000 of yearly tax planned down to zero
Mia and Jay pay about $90,000 a year in tax. Their plan uses three short-term rentals and real estate tax rules to target $0, with $259,700 of deductions.
Case snapshotPlan target
$90,000 of yearly tax the plan aims to remove
- Who
- Mia and JayMassachusetts household with W-2, business and side income
- Starting point
- Paying about $90,000 a year in federal and Massachusetts tax
- Program
- Legacy Wealth Blueprint
What the plan does
- Qualify for real estate professional status
- Use the short-term rental rules in year one
- Buy three short-term rentals in Massachusetts
- Run a cost segregation study on each rental
- Carry extra deductions forward to later years
- $259,700 of deductions the plan creates in year one
- $169,700 of extra deductions carried to later years
- $370,000 of down payments on three rentals
Disclaimer: This is education, not tax, legal or financial advice. Every figure below is a target written into Mia and Jay's plan, not a result. Talk to a qualified professional before you act on any of it.
Who this plan is for
Mia and Jay live in Massachusetts. They earn W-2 pay and business income. They also have some 1099 side income and some investment income.
Their biggest leak is tax. They pay about $90,000 a year in federal and Massachusetts tax. Federal income tax is $65,000 or more of that. Massachusetts takes $15,000 or more. Tax on investments and self-employment tax add about $5,000 each.
Their goal is to keep more of that money and use it to build wealth. The plan's answer is real estate. It has them buy short-term rentals and use the tax rules written for people who run rental property.
What the plan targets in year one
| What the plan models | Year one |
|---|---|
| Federal and Massachusetts tax today | About $90,000 a year |
| Deductions the plan creates | $259,700 |
| Tax bill the plan aims for | $0 |
| Extra deductions carried to later years | $169,700 |
| Down payments on three rentals | $370,000 |
| Net cash flow from the three rentals | $24,000 a year |
Read the $259,700 with care. It is not money saved. It is the total of deductions the plan creates on paper. Deductions lower the income that gets taxed. The plan uses them to bring the yearly tax bill from about $90,000 to $0. It counts $169,700 of those deductions as left over, to carry into later years.
The plan, step by step
1. Qualify for real estate professional status
Real estate professional status is an IRS label for people who work mostly in real estate. Without it, most people can use at most $25,000 a year of rental losses against a paycheck, and that phases out between $100,000 and $150,000 of income. With it, rental losses can offset W-2 and business income with no cap. The test is 750 or more hours a year in real estate, and more than half of total working time.
The plan maps out the hours. It sets 150 hours for finding and studying deals, 200 for running renovations, 300 for managing the rentals, and 100 or more for planning. The hours tracker is one way to log them.
2. Use the short-term rental rules in year one
Building up to professional status takes time. So in year one, the plan leans on the short-term rental rules. When guests stay 7 days or fewer on average, the rental counts as a business, not a passive rental. Its losses can then offset other income, as long as Mia and Jay put in at least 100 hours on each property and more time than anyone else. The plan aims for 60 to 100 guest stays per property each year. This page compares the two paths: REPS vs the STR loophole.
3. Buy three short-term rentals in Massachusetts
The plan spreads three rentals across different kinds of guests. Each one is bought with 20% down.
| Rental | Price | Down payment | Net cash flow a year |
|---|---|---|---|
| Near Boston and Cambridge, for hospital, university and convention visitors | $600,000 | $120,000 | $12,000 |
| Cape Cod or the North Shore, for beach and summer stays | $500,000 | $100,000 | $5,000 |
| Suburbs near I-95 and I-90, for business travelers | $750,000 | $150,000 | $7,000 |
| Total | $1,850,000 | $370,000 | $24,000 |
The plan closes the first rental in January, the second in March and the third in May. Net cash flow is what is left after running costs and loan payments.
4. Run a cost segregation study on each rental
A cost segregation study is done by an engineer. It splits a building into parts, like furniture, appliances and fixtures, that can be written off much faster than the building itself. With 100% bonus depreciation for property bought after January 19, 2025, many of those parts can be written off in the first year. This step creates most of the plan's year-one deductions. The plan orders a study as soon as each rental closes.
5. Set up an S corporation for side income
The plan forms an S corporation in February for side and consulting income. Paying a fair salary and taking the rest as a distribution cuts payroll tax. The plan also adds a home office, business mileage and training costs as deductions. Using $100,000 of business profit as its example, the plan models $11,150 a year from the S corporation.
6. Carry the extra forward and plan the estate
The plan expects more deductions than Mia and Jay can use in year one. The $169,700 left over carries forward to lower taxable income in later years. The plan also prepares for the Massachusetts estate tax, which starts at a much lower level than the federal one. It uses a revocable living trust, yearly gifts, life insurance held in a trust and a family limited partnership.
What has to go right
- The hours. Professional status needs 750 or more hours and more than half of working time in real estate. The short-term rental rules need 100 or more hours on each rental. The time logs have to be written as the work happens, not rebuilt later.
- Three closings in one tax year. The deductions only land in year one if all three rentals are bought and running that year. That takes $370,000 for down payments.
- Local rules and short stays. Boston and Cambridge have strict short-term rental rules, so the plan calls for checking the rules town by town and spreading the rentals out. Average guest stays have to stay at 7 days or fewer.
What to take from this
Mia and Jay's plan aims at a big change: a tax bill of about $90,000 a year planned down to $0. It gets there with deductions on paper, not new cash. In the same year, the plan puts $370,000 into down payments, and the three rentals are modeled to bring in $24,000 of net cash flow. Deductions taken now can also come back as tax when a rental is sold.
This page shows what the plan targets, not what happened. Whether the targets hold depends on buying the right rentals, running them well and keeping clean records. A CPA should review the numbers and the hours before Mia and Jay, or anyone in a similar spot, act on them.
Sources to check before you act
Check primary guidance and your own records before you treat any page as a final answer.
- Current IRS forms, instructions, and publications for the relevant tax year
- Your actual account statements, payroll reports, entity records, and advisor memos
Educational only. Results vary. Tax, legal, and investment decisions should be reviewed with a qualified professional who can see your full situation. Read our editorial policy.
Frequently asked questions
Is the $259,700 money Mia and Jay saved?
No. It is the total of deductions the plan creates in year one. Deductions lower the income that gets taxed. The plan uses them to target a tax bill of $0, down from about $90,000 a year. These are plan targets, not results.
What happens to the $169,700 of extra deductions?
The plan carries them forward. Losses that are not used in year one can lower taxable income in later years, such as a year with a raise or a business sale.
Why does the plan need real estate professional status?
Without it, rental losses can offset at most $25,000 of other income a year, and that phases out between $100,000 and $150,000 of income. With it, the losses can offset W-2 and business income with no cap. The test is 750 or more hours a year in real estate and more than half of total working time.
What does the plan need up front?
$370,000 for 20% down payments on three short-term rentals, a cost segregation study on each one, and time logs kept as the work happens. The plan buys the three rentals in January, March and May of the same year.