Live Tax Q&A for Business Owners: Real Questions, Answered (June 2026)

Lightly edited for readability: filler words and false starts are removed and misheard terms are corrected. Timestamps match the video above. This conversation is educational and is not tax, legal or investment advice.

0:00 · The big quotes, and welcome

Laura Dohanes: Every dollar has to do something for you. It can produce appreciation, it can produce cash flow, or it can produce a tax write-off. That's all a dollar can give you. Your 100 hours have to be more than anyone else's. If you have one cleaner going in every seven days to clean your property, you're already out. You don't lose your passive losses; they keep going, unless you die. If you die, don't die with passive losses.

Laura: We have people here from all over the United States, which is great. Welcome again. If you were here last month, you know we hold this Q&A session for our community, and I want to thank you for being part of what we're trying to give back.

0:43 · Can you call your spouse a "real estate professional"?
Full write-up: can your stay-at-home spouse be a real estate professional?

Laura: The question is: "My spouse doesn't really work. Can we just call her a real estate professional and wipe out my W-2 with rental losses?" Real estate professional status isn't just about the hours. Even if your spouse doesn't work and you think she has enough hours, it has to be a combination of things. There are two major tests to be a real estate professional. You can't just say someone is one and put it on your tax return.

Laura: First, you need more than 750 hours in real property trades or businesses. That doesn't simply mean looking at properties or managing rent. If one or two rental properties are all you have, it's almost impossible to meet 750 hours, and if you do, keep a log, because there's very little to get you there. That's test one. Test two: more than half of your total personal services have to be in real estate. That becomes a problem if you have other income or other activities, because your personal services have to be in real estate. If you're doing other things, it might not work.

Laura: That material participation requirement trips people up. They count on "She doesn't work, she's a stay-at-home mom." We don't dismiss that just because someone doesn't have a W-2, and I understand the reasoning. But every time someone, or their spouse, has a W-2, we say you can't claim it. I don't know of any court case where a person with a W-2 was granted real estate professional status under audit. So the reasoning is fine, but you need to meet both tests: no W-2, or at least half of your total personal service hours in real estate, plus the 750 hours.

Laura: And if you don't have a log, find a way. We're in the age of AI. Use AI to create a log or a memo. Record yourself on your phone, "I'm doing this and this," and have AI turn it into a log. It's the easiest time there's ever been to create these logs. I know everybody hates it when I say keep a log. But if something happens, the only way to defend yourself is to have paper, a document to prove it to the IRS. The IRS doesn't care about the story. They might in court, but it's not worth getting there. So if you can set up a system to log your hours, and you truly come close to or exceed 750 hours, I have no problem putting it on the return. There are other ways to establish real estate professional status, but this is the classic way. I hope that answers your question.

4:10 · Do you stay a real estate pro once you qualify?

Laura: "Once qualified as a real estate professional last year, can I stay qualified for a few more years?" Absolutely not. You have to qualify as a real estate professional every year. A lot of today's questions were about material participation, active participation, and active versus passive income. All of these, active participation, material participation, real estate professional status, are standards you have to meet every year. You don't do it once and you're done for five years. Material participation, if it's the 100-hour test, has to be met every year. The 750 hours for real estate professional status has to be met every year. You can qualify one year and never again, or qualify every year except one. Thank you, that was a great question.

5:33 · Does being a real estate pro cut the tax when you sell?

Laura: "Will real estate professional status help me avoid the net investment income tax on a capital gain from a property sale?" Real estate professional status doesn't do any magic. It only lets you use the losses you have. If you don't have losses, it doesn't give you anything. So depending on your other income, you can still get hit with the net investment income tax on your return.

6:05 · The short-term rental "loophole": the truth
Full write-up: the short-term rental loophole

Laura: I want to address something, because I have comments about the short-term rental loophole and quite a few scenarios here. People say that if you have a short-term rental, all the losses automatically pass through to your return, almost as if you were a real estate professional. Yes or no? Do you want me to be very honest? Do I have your permission? OK. Nobody's telling you this. Social media always portrays the great and the greatest, not the ugly and the ugliest, and I'm probably guilty of it too.

Laura: Here's a short synopsis of how to think about a short-term rental. You assess it the same way as real estate professional status: what am I going to do with it? To qualify as a short-term rental, you need an average stay of seven days or less. That's in your power, although one long stay can completely throw off your average. Say you control that and have an average stay under seven days for the full year. Great, but that's not it. It still requires material participation. Here we don't need 750 hours; we need 100. Many people say, "I spend 100 hours. I collect rent, I do this, and I have a company doing the rest."

Laura: Here's the kicker, where a lot of people get knocked out of the short-term rental loophole: your 100 hours have to be more than anyone else's. If you have one cleaner going in every seven days to clean the property, you're already out. A short-term rental gives you the highest benefit when it's treated as a business: when you materially participate more hours than anybody else and you actually provide services. You might do the cleaning, handle the bookings, or welcome guests in and out. You have to be providing some services within your short-term rental.

Laura: If you're not, even with 100 hours of material participation, it's still treated like a long-term rental and the losses won't pass through. The only way all the losses pass through as a business is if you materially participate and provide services. If a management company does your bookings and a cleaner comes in, managing all those people won't get you there. A lot of people buy short-term rentals thinking it's the greatest thing, and it can be, if you plan it and do everything you're supposed to do. That's the catch. People don't know, and then at filing time they hear, "It's not a qualified short-term rental. It still goes on your Schedule E. It can't be a business."

Laura: Another issue: the minute you have a short-term rental, depreciation moves from 27.5 years to 39 years, and a lot of people miss that. A long-term residential rental is depreciated over 27.5 years, an arbitrary number the IRS picked for how long it takes to recover the cost of the building. When you make it a short-term rental with stays of seven days or less, you're treated like a hotel, a commercial building, and you recover the cost over 39 years. So know the rules and don't fall prey to the hype. Short-term rentals have been very hot for a while, but we've seen real damage done to people who didn't understand how short-term rentals play out long term.

10:48 · Short-term vs long-term: what every dollar must do
Full write-up: short-term vs long-term rental

Laura: Mahesh asks: "If I don't have material participation, is there any tax benefit to buying a short-term rental instead of a long-term rental?" Yes and no. Anyone who's been around what I teach for any length of time knows I always analyze the dollar you put to work. Every dollar you invest has to produce one of three things: appreciation, cash flow or a tax write-off. That's all a dollar can give you.

Laura: So when you invest in real estate, does long-term versus short-term matter? Yes and no. I'm not choosing short-term or long-term. I'm asking what I'm trying to achieve. Once you're clear on that, it's easy to choose the tool. Short-term or long-term, I couldn't care less; I'm looking for the benefit. People go short-term because they want either higher profits or a bigger tax write-off. Knowing what you want gives you a clear guide for what to do with the property.

Laura: Let me say it again: every dollar you put out into the world has to come back producing appreciation, cash flow or a tax write-off. Can you think of anything else a dollar can produce? Those are the only three. Real estate is a perfect example because it can give you all three, though not in the same proportion and not all at the same time.

Laura: Let's analyze it. A short-term rental gives you higher cash flow, because you rent it more often at higher nightly rates. Appreciation stays the same. With higher cash flow, it may also give you a bigger tax write-off, depending on how it's set up. A long-term rental gives you steady cash flow, not necessarily the highest. Appreciation is the same as a short-term rental. And it may or may not give you a tax write-off, depending on your income and sources of income, and on who holds the real estate: you personally with high income, a corporation, a partnership, an LLC or a trust. You might not get the tax advantage today; you might only get it when you sell. So short-term versus long-term is a tool.

Laura: Real estate, rule number one, should give you appreciation if it's a good property. If not, sell it. That's 101. The biggest mistake people make is holding real estate much longer than they should. Real estate can lose its ability to appreciate. In some areas of San Francisco, values have dropped drastically. We have clients with great commercial and residential properties who can't even operate in some areas because of the homeless situation. What's the likelihood those properties appreciate much, unless the city or county policy really changes? So think about the economics too: is there a realistic way for this property to appreciate? If not, you might want to exchange it.

Laura: So from a tax perspective, it depends on your situation. A short-term rental might be the best fit, especially if you have a spouse who's actually involved and doing the work, or you might benefit more from a long-term rental. And if you're a real estate professional, it doesn't really matter which you choose. I hope that answers your question.

15:01 · I make $400K on a W-2. Why do my friends pay nothing?
Full write-up: high W-2 earner taxes

Laura: "I make $400,000 on a W-2. My friends with businesses pay nothing in tax. What can I actually do besides quitting my job?" We wouldn't want you to quit your job. Is it fair? The tax system often doesn't seem fair, and I'll explain it the best way I can. The business owner gets favored by the tax system. It's not because they're special or because of who passed the law; this is just my own theory. A business owner takes on so much risk. So many businesses fail in the first few years, and someone who built a business that makes $400,000, even the same amount as you, went through much more risk. Hence they have access to deductions you don't have as a W-2 employee.

Laura: Someone came to me with a valid question. He's a pilot, and he said, "I used to be able to write off all my per diems, the nights, the meals and all my expenses on my return as a W-2 employee." A pilot can make anywhere from $400,000 to maybe $600,000 or more. In the past, unreimbursed employee expenses were deducted on Schedule A as itemized deductions. There were so many audits of them, and I really want you to hear my heart here: I'm not saying you or anyone did something wrong. I've had the benefit of representing so many people in different types of audits, and with unreimbursed employee expenses, 99% of the time people couldn't prove their expenses over an extended period when the IRS came in.

Laura: That piece of law was used and abused in every way possible, and it was repealed. As humans, when something good gets passed, we tend to abuse it, and many laws are being abused right now. When the IRS starts audit projects on a provision and finds no compliance, meaning people can't prove it, whether it's uniforms, dry cleaning or the dog, anything you can imagine on those lines, they take it away, which is very sad.

Laura: When that law was repealed, employees were supposed to go back to their employers and negotiate reimbursement. The IRS's standpoint was that if you truly have unreimbursed expenses as an employee, your employer should reimburse you through what's called an accountable plan. Many times employers didn't require the expense, and people were deducting above and beyond what they should have. That's my two cents on why people used to be able to claim expenses against W-2 income and now can't. Was the change a good thing? I don't know.

Laura: So as a W-2 employee making $400,000, single or married, depending on your state, it's very difficult to reduce your tax bill unless you invest. Remember what a dollar can do. The investment has to give you something specific, like depreciation or energy credits. Of the three things a dollar can give you, appreciation, cash flow and tax benefit, it has to lean toward the tax benefit. That's the mistake W-2 employees make: they want it all, cash flow and everything else. As a W-2 employee, you have to be focused and pursue the actual tax benefit, because that's the only thing that will reduce your tax bill. Business owners, by contrast, have access to many types of deductions. So it requires investment. On a $400,000 return, depending on whether you're single or married, you won't save unless you invest a minimum of $25,000 to $50,000, sometimes more. I hope this answers your question.

20:16 · I got money back from my oil and gas well. Is it recapture?
Full write-up: oil and gas return of capital: is it recapture?

Laura: The next question: "I'm a direct owner of a new oil and gas well that was funded in 2025, and I took the intangible drilling cost deduction in 2025. Drilling was completed in 2026, the costs came in lower than estimated, and now I'm getting a return of capital for the difference." I don't know how much he put in, but he's getting $10,000 back as a refund, and the question is whether that's recapture.

Laura: Technically, an oil and gas deal shouldn't refund excess cash, which makes this interesting, because it could be treated more like a deposit than the actual investment. Oil and gas is a great deduction for a high earner, as we mentioned. It can give you a write-off in year one if you're active, materially participating with a minimum of 100 hours, in which case you deduct the intangible drilling costs. If those costs come in lower and you get money back, depending on how it's treated, you can either go back and amend 2025, saying your cost wasn't the $70,000 you put in, it was lower, or the excess returned to you may be classified as income.

Laura: I don't know of any recapture on oil and gas drilling costs. Recapture applies to property. I'm not sure whether you're here, since I got this question by email, but it's not truly recapture. It could be ordinary income, though. If this is your investment, I'd ask the operator for a breakdown of exactly how your investment was treated, so you know exactly where it goes on your return. It could be ordinary income for you.

22:23 · Workforce housing and "advanced" strategies: good for you?
Full write-up: are advanced tax strategies right for you?

Laura: Terry asks: "What's your take on investing in workforce housing and equipment rentals to offset taxes for W-2 earners?" It's a great question, Terry, and here's my number one take on any strategy out there, because there are so many. We analyze the type of income first. Do you have ordinary income, earned income? What strategies work for that, and how could you write them off? With a high W-2, they can work, as long as you understand the deal.

Laura: Here's one thing people often don't understand: some strategies aren't elimination strategies. Some are deferral, meaning you're not paying tax today, but it's coming, like the recapture we talked about. So any investment with a benefit can be a great investment. The question is whether it's great for you. That's the number one question I'd ask: is it a good fit for you? Understand the full play of a strategy, from how you enter to how you exit. Does it need another strategy when you're done? How do you close it out? How long are you locked in, and what do you have to do to get out? Once you understand all that, if it still fits your scenario, I say it's a great deal.

Laura: Many of these I don't like for typical high earners. Unless you have about a million dollars of earned income combined, between spouses and so on, I wouldn't go into these strategies. Depending on your case, there are many other things you could do. If you're in a state with no income tax, maybe $700,000 to $750,000 is where I'd even start looking at these strategies. Advanced tax strategies have a place, and they're called advanced for a reason. I'm not one to say they're for everyone at every stage. First use up the simpler options: use your cash, and use strategies where you control your money, before you put money into advanced investments. When you control the money, you control the outcome from beginning to end. Then you invest in things you don't necessarily control.

Laura: I've seen great equipment rental strategies, and we've used many of various kinds. Housing has become hot. I'd be very cautious. I'm not against any group, but many of these are investment groups, and a lot of people coming in fall into the fear of missing out: "This is the greatest strategy," when they don't even need it, or the cost of getting in is way beyond what their tax bill would be. They don't even know what their tax bill is, but it's presented as a must-invest. So be cautious. When you see a strategy, ask whether it's good for you and whether it's good for this year. Housing is a great strategy, and I love it. Is it for everyone? Absolutely not. And if you're in a state with no income tax, like Texas or Florida, your income has to be much higher than in other states to get a real return on that strategy. I hope that answers your question.

26:30 · Syndications as an LP: what to do after the exit
Full write-up: syndication exit strategy for LPs

Laura: Terry is also asking: "I participate in a lot of syndications as an LP. They generate depreciation through the K-1 to offset taxes. I'm not sure what to do after the five-year exit. Do I ask them to 1031 the fund into another deal, or what's the best strategy after exit?" You have to know your end goal and your exit before you enter the deals. I've seen people with 20 or 40 syndicated deals who invested in anything that came along. What do you think the end goal is there? Help me out in the chat; let me know you're still awake. Most of you are investing in some passive investment. If you don't know the end goal, you go by whatever seems right, and you'd never know whether you met your goal.

Laura: I'm going to sound like a broken record: what can a dollar do for you? It can give you appreciation, cash flow or a tax write-off. When I go into multiple syndicated deals, what am I trying to achieve? Someone says cash flow plus K-1 depreciation, and asks how to avoid recapture. You can't. Once you understand that when you invest, you've entered a race, it's almost like a game, though I don't mean that literally. You can't enter these investments for the cash flow without thinking about how you'll get out. If you're taking bonus depreciation without thinking it will come back to you, that's a mistake, because you will get hit.

Laura: If you have multiple investments exiting, you could possibly do a 1031 exchange. That's a choice, but you have to invest in something else. Once you have high recapture or a high gain from one deal, you invest in another deal that gives you more bonus depreciation, more of the same benefits you got the first time. It's like a ball that always has to keep rolling.

Laura: I know you probably want me to say "do this, then this." Everybody asks me the same thing: give me A, B, C. It's not that easy, and I'm not avoiding the answer. It depends on what you're trying to achieve. Is this in your personal name or an LLC's? Is it for succession planning or legacy? Are you bringing your kids in, building something multigenerational? It depends so much on your scenario that it's almost impossible to give one way to do it. You choose the end goal. Say I have properties giving me cash flow right now. For the next investment, I might choose an energy deal or something else with high write-offs. If I have high appreciation and want to exit, maybe I do a 1031. It all depends.

Laura: But absolutely, when you exit in five years, you have to think about what you want and need next, and you pair your investments. If one gives you a high gain that year, you invest in something else that gives you the write-off you're looking for. You can do any of those things; which one works for you depends. Not all deals are 1031 deals. Sometimes investing in another property and taking bonus depreciation makes the most sense, especially if you're a real estate professional.

31:00 · Oil and gas: LP vs GP and the drilling deduction

Laura: Marty says: "I invested in an oil and gas deal. Can I take the intangible drilling costs if I'm a limited partner, a passive investor?" You can't. Why is there such a big difference between a passive and an active investment? If you're passive, the deduction only reduces your passive income. It will never generate a loss you can use against other income. So when would you invest in oil and gas? If you have a high W-2 or high S corp profits. If you're an LP, unless you have other passive income, it won't generate a loss to offset any other income. If you're active, however, the intangible drilling costs can actually take you negative, and that loss becomes deductible against other income. So you have to be active. In most of these deals you're active in year one, and then they switch you to passive in year two. I hope that answers your question.

32:25 · Passive losses and the Form 8582 "bucket"

Laura: Marty follows up: "So the answer to my question is that I can write it off against my passive real estate income, then?" Yes and no. It depends on how it's reported to you, but it's going to be a passive loss. Great question, Marty. Passive losses of any kind go on a form on your return, Form 8582, which tracks your passive income and passive losses. The minute you have passive income from any source, it may unlock passive losses, depending on what's sitting on that form. So it depends on how the form works out and what's on it.

Laura: To make it really simple, think of it as a bucket. You dump your passive losses into the bucket. Passive income gets taxed right away; you don't carry it to next year. Passive losses you can't use get carried forward, and Form 8582 tracks what you carry forward: real estate, K-1s, anything carried forward as a passive loss. The bucket accumulates losses for however many years, with no time limit. You can keep carrying them forward and you don't lose them, unless you die. If you die, don't die with passive losses. Bad joke, sorry.

Laura: Back to the question. When you have passive losses in the bucket, the minute you have passive income, it unlocks some of them. That's how passive losses are treated overall. They don't go off into some universe where somebody picks them up. It's a bucket, and it's all there on your return. Search your return for Form 8582. I hope that answers your question, Marty.

34:28 · Same income. Why did my tax bill explode? (AMT)

Laura: I did have one more come in: "I made the same amount as last year. Why did my tax bill explode?" You'll never have two years exactly the same. Even with the same income, your age can put you in a different situation, a child can age out, your employer's withholding can change, and there's the net investment income tax. And if you've been around a few years and remember when AMT was a big deal: AMT is coming back, and we're going to see big damage from it, especially if you have passive income and long-term gains, and especially if you're a high earner with stock options or RSUs. With state taxes, we've been very surprised by some states in the last few months. So AMT is going to do a lot of damage on tax returns. Even if you made the same amount as last year, be proactive about understanding what changes will affect your return.

35:40 · Closing thoughts

Laura: I hope that answers that question. Thank you for joining today, and I'll see you next time. Make it worth it. Again, I'm here for you. If you have specific questions, send them in. Thank you, everyone. Have a great weekend ahead, and I'll see you next time.