1. Interest: If the interest a landlord pays on their mortgage isn’t their biggest expense, it is certainly close to it. Even with rates as low as they are today, interest payments are a sizable cost that needs to be accounted for. Nonetheless, for as intimidating as interest payments can be, they are not without their benefits. Mortgage interest has become synonymous with one of the largest deductions landlords can make. Passive income investors can deduct mortgage interest payments on loans used to acquire or improve a rental property. However, it is important to note that they can also deduct the interest paid on credit cards specifically used to to maintain rental property activity.
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P2P lending started in San Francisco with Lending Club in mid-2000. The idea of peer-to-peer lending is to disintermediate banks and help denied borrowers get loans at potentially lower rates compared to the rates of larger financial institutions. What was once a very nascent industry has now grown into a multi-billion dollar business with full regulation.
According to NOLO, “the home office deduction is available only if you are running a bona fide business.” That means any work dedicated to your passive income property from the confines of your own home can’t be a hobby. “If the IRS decides that you are indulging a hobby rather than trying to earn a profit, it won’t let you take the home office deduction.”
If you’re a retired or disabled farmer, you’re treated as materially participating in a farming activity if you materially participated for 5 or more of the 8 years before your retirement or disability. Similarly, if you’re a surviving spouse of a farmer, you’re treated as materially participating in a farming activity if the real property used in the activity meets the estate tax rules for special valuation of farm property passed from a qualifying decedent, and you actively manage the farm.

Passive income tax benefits have the potential to turn a good rental property into a great one. However, as I said before, nobody is going to hold your hand and tell you to claim the appropriate deductions; you need to make sure you know what is within your legal right to deduct. I encourage all passive income investors to consult a certified public accountant (CPA) to confirm that they are, in fact, taking advantage of all the deductions made available. Please take note of the passive income tax benefits you qualify for and see to it they contribute to your bottom line instead of taking away from it.
If you are not a real estate professional but oversee your rental real estate, your revenue qualifies as a different type of passive income and you might be able to claim a portion of any losses against active income. As of the 2018 tax season, you can write off up to $25,000 a year in rental real estate losses if your Adjusted Gross Income is $100,000 or less. If your AGI is over the threshold, the size of the loss you can claim goes down by 50 cents for every dollar of income. At an AGI of $150,000, you no longer can take the passive loss against other income.
If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Similarly, you may be able to offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception.
If you’re a retired or disabled farmer, you’re treated as materially participating in a farming activity if you materially participated for 5 or more of the 8 years before your retirement or disability. Similarly, if you’re a surviving spouse of a farmer, you’re treated as materially participating in a farming activity if the real property used in the activity meets the estate tax rules for special valuation of farm property passed from a qualifying decedent, and you actively manage the farm.
When withdrawing money to live on, I don’t care how many stock shares I own or what the dividends are – I care about how much MONEY I’m able to safely withdraw from my total portfolio without running out before I die. A lot of academics have analyzed total market returns based on indices and done Monte Carlo simulations of portfolios with various asset allocations, and have come up with percentages that you can have reasonable statistical confidence of being safe.
Passive income differs from active and portfolio income. However, despite its name, passive income doesn’t always mean you can sit back idly while you earn money. In fact, the IRS also includes in its definition of passive income as “net rental income” and sometimes self-charged interest. This means to begin earning passive income, you’ll need to invest some time and/or money at least at the start. Because the IRS still views it as income, that means passive income is subject to taxation.
3. Start as soon as possible. Building a livable passive-income stream takes a tremendously long time, largely because of declining interest rates since the late 1980s. Gone are the days of making a 5%-plus return on a short-term CD or savings account. Today, the best 12-month CD is at 2.5%, and the best money-market rate is about 1.85%, which is not bad, considering such rates were below 0.5% just a couple of years ago. Know that every $100 you save can generate at least $2.5 in passive income.
Income tax is a cost of doing business and that cost carries over into the business of real estate ownership and operations. In July 2017, in the depths of the summer, the Federal Department of Finance (“Finance”) announced drastic changes that would have changed that cost of doing business for those owning shares of a Canadian controlled private corporation (“CCPC”). When ultimately distributed to the individual shareholder in the form of a dividend, investment income earned on the retained earnings generated from an active business would have cost the shareholder an ultimate income tax rate equal to 73% of the investment income. These proposed changes to the “passive income” rules were very complex and would have had the potential to shift the after-tax return for CCPCs while leaving the tax burden of public corporations, foreign corporations and tax-exempt entities unaffected.
In 2006, Dr. Hardy purchased a 12.5% interest membership in MBJ for $163,974. During the year following this purchase, the Hardy’s decided to build an office for Northwest Plastic Surgery next to MBJ. Dr. Hardy had no day-to-day responsibilities at MBJ, never managed it, and did not have any input about management decisions. He primarily performed surgeries on MBJ's patients on Mondays, and he did not pay rent to perform surgeries at MBJ. He received a distribution from MBJ regardless of whether he performed any surgeries at MBJ, and this distribution was not dependent on how many surgeries he performed. Physicians cannot refer their patients to the surgery center when they hold a financial interest. However, the patients often choose the surgery center because it was cheaper.
The tax returns Romney has made public show most of his money comes from investment returns on his holdings rather than from wages or a salary. His overall tax rate in 2010 was 13.9 percent and his estimated rate for 2011 is 15.4 percent. This caused a predictable outcry that his tax rate is lower than the income tax bracket of many middle class Americans.
A great source of passive income is advertising dollars from other businesses and people.  If you have a website, blog, or strong social media following, other businesses will start to take notice.  A trick I have learned in this space is that it is much less expensive and faster to go where people already are then to try and create it yourself.  But, if you create it yourself, then others will come to you.  This is how you turn you blog, etc. into passive income.  Let’s say your blog has 300,000 visitors a month, that’s quite the following!  Other businesses and people looking to advertise a product or service would rather come to you and pay you to have their advertising on your blog.  This is less expensive for them since you have already created an audience for them, and great for you since they are paying you for this audience. 
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Secondly – and this is just quibbling – I’d change that risk score. The risk of private equity is incredibly high and should be considerably riskier than bonds! You are providing a typically very large amount of capital to one business that you agree to have no control over, and the success or failure of that business over a locked, predefined term determines your return. And in the few deals I’ve negotiated for clients, my experience has been that there are often management fees, performance fees, etc. that may cut into your potential gains, anyway. You’re putting a lot of eggs in one basket, and promising an omelet or two to the management no matter what. You really need to be confident that you found the next Uber before you take this giant risk!
Part of providing value is building trust. Don’t link to things that aren’t of good quality or people won’t trust your recommendations. The other part of making an audience is consistency. It matters less how often you post than how consistently. If you only have time to do one post a month, that post should come out on the same date and time each month.
The SBD provides a low rate of corporate tax on the first $500,000 (known as the “SDB limit”) of active business income annually. Business owners and incorporated professionals who don’t need to pay out corporate earnings to fund their personal lifestyles are able to enjoy a significant tax deferral of up to 41 per cent by simply leaving funds in their CCPC and investing them.
Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world. Follow @DanCaplinger
Lastly, you’ll need someone to help you create your product. Unless you decide to do this yourself, you’ll need to choose wisely. There are a lot of different choices for finding a graphic designer. Fiverr.com is a cheap option for having someone create a basic icon or other graphic needs starting at $5. 99designs.com is another great option if you want to have multiple graphic designers compete against one another to pitch you their best versions of your idea. 99designs also offers a 100% money back guarantee (which I’ve used), so you have nothing to lose! Upwork.com is good for finding just about everything. You can find graphic designers, app developers, and even marketers. I would stick to a simple graphic designer and app developer. Some teams do both graphic designs and app development, but I personally like to keep those separate. From experience, I’ve gotten better content when I don’t use one-stop-shops.
It is very important to understand that contacting a “professional” to learn how to do this only results in them trying to sell me crap properties (whether high end or low end). I’ve tried contacting realtors out of state, and they attempt to sell me crap or someone else’s problem. No one has a vested interest in actually helping someone or teaching them about how to get an out of state rental. very frustrating. I could go out tomorrow and buy a rental in my city, but that is the last place I want to own one. Anyone? Are there an real people on here?
Herbert and Wilma are married and file a joint return. Healthy Food, an S corporation, is a grocery store business. Herbert is Healthy Food's only shareholder. Plum Tower, an S corporation, owns and rents out the building. Wilma is Plum Tower's only shareholder. Plum Tower rents part of its building to Healthy Food. Plum Tower's grocery store rental business and Healthy Food's grocery business aren’t insubstantial in relation to each other.
If you make the choice, it is binding for the tax year you make it and for any later year that you are a real estate professional. This is true even if you aren’t a real estate professional in any intervening year. (For that year, the exception for real estate professionals won’t apply in determining whether your activity is subject to the passive activity rules.)
But, wait: nothing is ever that easy; And, there's no such thing as 100 percent passive income. Building passive income actually requires hustle and an investment of time upfront to get your money off the ground and growing while you eat, sleep and play. Maintaining that growth means making sure that you're using the right tools and strategies to automate the work for you.
Writing an e-book is very popular among bloggers, as many have noted that “it's just a bunch of blog posts put together!” You will not only have to make an investment of time and energy to create the e-book, but market it correctly. However, if marketed correctly (through blogging affiliates in your niche, for example), you could have residual sales that last a very long time.
You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions.
The much loved model for bloggers and content creators everywhere and for a good reason…it’s pretty easy to write a 60-80 page ebook, not hard to sell say $500 worth a month through online networking, guest posting and your own SEO optimized blog, and well you get to keep a large whack of the pie after paying affiliates.  Hells yeah!  Continue reading >

Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours; it never has short crops nor droughts; it never pays taxes; it buys no food; it wears no clothes; it is unhoused and without home and so has no repairs, no replacements, no shingling, plumbing, painting, or whitewashing; it has neither wife, children, father, mother, nor kinfolk to watch over and care for; it has no expense of living; it has neither weddings nor births nor deaths; it has no love, no sympathy; it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.
The most liquid of the private investments are investing in equity or credit hedge funds, real estate funds, and private company funds. There will usually be 6 month – 3 year lockup periods. The least liquid of the private investments are when you invest directly into private companies yourself. You might not be able to get your money out for 5-10 years, depending on the success of the company and upcoming liquidity events.
If you love design and you are an artistic person, selling digital products on Etsy could be a great way to earn passive income. Digital products require little maintenance, your customers will simply receive a link to download them (which means you don’t have to worry about shipping and returns handling). All you need to do is spend time upfront to create beautiful artwork! (Easy right?)
Passive income is the Holy Grail for online marketers. It's automatic. Effortless. But, not at first. In the beginning, it's grueling. I liken this to doing the most amount of work for the least initial return. However, over time, as your passive income begins to increase, your reliance on an active income plummets. That's when the real magic starts to happen.
However, while most are familiar with the concept of a passive income rental property, few are actually aware of just how good of an investment they can be. Of course the right property will attract tenants with monthly cash flow, but it is important to note that the benefits of a rental property extend far beyond that of the capital they bring in. In fact, you could argue that the cash flow is an added bonus, coming in a close second to tax benefits. For what it’s worth, the tax benefits associated with a passive income property can very well be the most attractive asset sought out by landlords.

The business isn’t an excluded business. Generally, an excluded business means equipment leasing as defined, earlier, under Exception for equipment leasing by a closely held corporation , and any business involving the use, exploitation, sale, lease, or other disposition of master sound recordings, motion picture films, video tapes, or tangible or intangible assets associated with literary, artistic, musical, or similar properties.
The IRS requires REITs to pay out at least 90% of its income to shareholders.  Thus, REITs tend to be higher yield since a large fraction of the earnings come out as dividends, which may be beneficial for certain income oriented investors.  The flipside is the tax cost for investing in REITs since income must be distributed and as a holder the taxes flow through to you.
The appeal of these passive income sources is that you can diversify across many small investments, rather than in a handful of large ones. When you invest directly in real estate, you have to commit a lot of capital to individual projects. When you invest in these crowdfunded investments, you can spread your money across many uncorrelated real estate ventures so individual investments don't cause significant issues.
That strategy seems waaaayyyy less risky than actively picking stocks of supposedly “reliable” stocks that issue dividends, which could be cut at any time due to shifting industry trends and company performance. Dividend investing feels like an overly complex old-school way of investing that doesn’t have a very strong intellectual basis compared to index investing.

One of the easiest ways to get exposure to dividend stocks is to buy ETFs like DVY, VYM, and NOBL or index funds. You can also pay an algorithmic advisor like Wealthfront to automatically invest your money for you at a low fee. In the long run, it is very hard to outperform any index, therefore, the key is to pay the lowest fees possible while being invested in the market. Wealthfront charges $0 in fees for the first $15,000 and only 0.25% for any money over $10,000. Invest your idle money cheaply, instead of letting it lose purchasing power due to inflation. The key is to invest regularly.
One of the easiest ways to get exposure to dividend stocks is to buy ETFs like DVY, VYM, and NOBL or index funds. You can also pay an algorithmic advisor like Wealthfront to automatically invest your money for you at a low fee. In the long run, it is very hard to outperform any index, therefore, the key is to pay the lowest fees possible while being invested in the market. Wealthfront charges $0 in fees for the first $15,000 and only 0.25% for any money over $10,000. Invest your idle money cheaply, instead of letting it lose purchasing power due to inflation. The key is to invest regularly.
In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. For this purpose, a rental activity is an activity from which you receive income mainly for the use of tangible property, rather than for services. For a discussion of activities that aren’t considered rental activities, see Rental Activities in Pub. 925.
Starting a blog is one of the most popular side hustles to earn online income. This is because whether you have 10 people or 10 million reading your content, the amount of your effort to write an article is the same. Websites have low start-up costs and you can literally buy your domain, launch your site and have a few pages created in less than an hour. You won’t start making money right away, but you will be building towards that first $1 of income.
According to Congressional Budget Office figures from 2011, the top 1 percent of taxpayers pay an average of 29.5 percent, those in the percentiles from 81 percent to 99 percent pay 22.8 percent, those from 21 percent through 80 percent pay 15.1 percent, and the bottom 20 percent pay 4.7 percent. Those numbers, of course, don’t include the 49.5 percent of Americans who pay no federal income tax at all.
We regularly update ourselves with the advancements in these passive incomes since 2 years. We have probably handled more products and accessories than almost any team on the planet, so we have a particularly experienced perspective and depth of knowledge when it comes to these items. We looked at several aspects when choosing the best passive incomes, from objective measures such as physical dimensions and design to subjective considerations of look and feel. Though we have a variety of recommendations across various styles, all of our picks satisfy criteria that suits most people, there by reducing the confusion of choice. For a fresh prespective, we also asked non-tech-focused friends to tell us what they thought about the finalists.
Anthony, nice setup! To your question about the rental mortgages, you haven’t said what interest rate you are paying. As a start, if you are paying more than the risk free rate (Treasury bills) which you probably are, then a true apples to apples comparison would be yes, pay off the mortgage. But, if you are comfortable taking more risk, you have other options to invest in which you *hope* will yield you more over the coming years. You also didn’t say whether the rentals generate net income and if so, how much? What is the implied rate of return on the equity you have invested in them? If you pay the mortgages off, you’ll have even more equity tied up, will the extra net income make that worthwhile? Maybe you should use the money to buy more rentals instead, if purchase opportunities still exist in your town. … this is less of an answer than a framework to analyze the decision, hope it is helpful.
I also disagree that every person will crave more and have to go for more. That may be a true statement for a lot, but it doesn’t have to be true and it isn’t for everyone. The other perspective of that is that most likely the people who get themselves to financially freedom, because it is no small feat, are the type of people who are extremely driven and motivated to further challenge themselves, so it’s doubtfully in their nature to stop once they actually can.
When I purchase an existing online business, I look for cash flow over the past year and where the money comes from. I want the sources to be more passive so that it does not take a lot of my time. Also, typically I will make an offer that is 18 – 24 months of profit so that I know that I will get my money back within the next two years. I hope that helps!
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