In this video, we walk through how to model passive losses from real estate investments in Voyant’s financial planning software. You’ll learn how to input passive losses, reflect their impact on your client’s taxable income, and demonstrate the long-term planning implications. This scenario is especially useful for financial advisors working with clients who own rental properties or other passive income-generating assets.
Transcript
In today's training, I’ll walk you through how to use our new passive loss model on properties.
If we scroll down to the Property section, I already have a rental property entered for this example. When I open it, you’ll notice a new toggle that allows you to model depreciation on the property. You can turn this on anytime you want to include depreciation in your plan.
If you have questions about how to use these fields or enter the data, there’s inline help built in. Under “Depreciation Applies,” you’ll find an example scenario showing how to input the data. Each field also includes definitions. For example, “Depreciation Period” refers to the number of years over which depreciation applies. “Base Depreciation Amount” is the depreciable portion of the asset—typically the building value. “Depreciation at Plan Start” is where you enter any depreciation already applied before the start of the plan.
In this example, the property has already been depreciated by $25,000, so I’ve entered that amount to make sure it’s accounted for. After saving these settings, I’ll switch over to Year View to show how this affects the taxes.
In Year View, under the Taxes section, scroll to Federal Taxable Income, and you’ll see a “Passive Income Offset” in any year where depreciation applies. If the loss in a given year is greater than the taxable income, the software will apply a carryover. This will be rare, but the system does account for it.
If you want to show your client a comparison, you can set this up as a “what if” scenario and compare it against a scenario without property depreciation. This allows you to contrast the tax charts or provide a quick cumulative tax summary showing the difference in total taxes paid with and without depreciation on rental property income.
We can also model recapture tax if the property is sold. In this example, I’ve left depreciation turned on and set the plan to sell the property when June is age 75. Going back to Year View and navigating to that year, under the Tax Summary, you’ll see “Asset Depreciation Recapture Tax” and “Asset Depreciation Recaptured.” The total taxes due that year are applied to the client’s expenses in arrears, so if we move to the following year, you’ll see June’s taxes from the previous year included in the expenses for 2040.
You can also compare a “Sell Property” scenario against a “Hold Property” scenario. Using Compare Plans in Chart View, you can see the difference in taxes between the passive loss model and the “what if” scenario where the rental property is sold.
I hope this was helpful. If you have questions or need help modeling a specific scenario, please reach out to us at support@planwithvoyant.com. You can also click your client’s name in the top right corner, request support, enter your question into the text box, and share client access.