I have a W2 job that I work 9-5, I have a rental property business where I own several rentals, and I am a Real Estate agent.
Based on that statement, I assume there is no way possible that you spend more than 50% of your working time in real estate, since you work a 9-5 job 5 days a week. As I see it, you don't qualify as a real estate professional then. According to IRS Publication 925 at https://www.irs.gov/pub/irs-pdf/p925.pdf on page 6 of that document, to qualify as a real estate professional the requirements are:
• More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.
• You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated
You must meet both of the above in order to qualify as an RE professional. I doubt you do. But it's not impossible. Now if your W-2 job involves real estate, you can't count personal services you performed as an employee in real property trades or businesses unless you were a 5% owner of your employer. You were a 5% owner if you owned (or are considered to have owned) more than 5% of your employer's outstanding stock, outstanding voting stock, or capital or profits interest.
If you file a joint return, don’t count your spouse's personal services to determine whether you met the preceding requirements. However, you can count your spouse's participation in an activity in determining if you materially participated.
my rental properties are considered passive
Assuming you don't qualify as an RE professional, that's correct.
and my losses aren’t as helpful since I make more than $100k or not helpful at all if I make over $150K.
I get the impression the response you were provided by the CPA was not all inclusive. Here's how this works.
First, understand that it is not common for long term residential rental real estate to show a profit "on paper" at tax time. Especially if there's a mortgage on the property. When you add up the deductible rental expenses of mortgage interest, property taxes, insurance, and the depreciation you are required to take by law, those four items alone will easily exceed the total amount of rental income received for the year. Add to that other allowed rental expenses (repairs, maintenance, etc.) and you're practically guaranteed to operate at a loss every single year.
Once your rental income gets your taxable rental income to zero, that's it. Any excess losses are not lost forever though. They get carried over to the next year. So it's rather common for your carried over losses to increase with each passing year. Losses can be "realized" (used) when one of several things happen:
1) You actually make enough rental income that exceeds the losses, so you can deduct those losses (or some of them) from the rental income, until the taxable rental income reaches zero. This is not likely to happen unless you pay off the mortgage and/or the property is fully depreciated.
Now there is a provision that allows you to deduct up to $25K of passive rental losses from other ordinary income. But I think your AGI is to high to qualify for that. So I'm not getting into that.
Take a look at your 2021 SCH E on line 26. I'm fairly sure you show a loss.
Now I provided all the above information in order to show that your tax liability is most likely not due to your SCH E rental income. More than likely, it's due to your SCH C income. I expect line 31 of your 2021 SCH C shows a substantial profit. Did you pay quarterly taxes on that profit? I'm guessing, based on no facts, that you did not.
On your 2020 form 1040 do you see an amount on line 38? If so, that's your penalty for not having paid enough to the IRS throughout the year. This can be done monthly by increasing your W-2 with holdings each pay period with your W-2 employer, or by making quarterly payments to the IRS yourself each quarter, or a combination of both. By ensuring you pay the IRS as required, you can avoid a large tax bill, as well as penalties, at tax filing time.
Now the IRS does provide instructions and worksheets that you can use to figure and estimate your taxes for each quarter. They're at https://www.irs.gov/pub/irs-pdf/f1040es.pdf . Based on my personal experience over the last 15+ years of being self-employed, I've found that it works out to between 19% and 23% of my gross SCH C business income. So I quit using the worksheets.
A good general rule of thumb is that if you send the IRS at least 20% of your "GROSS" SCH C business income each quarter, then come tax filing time you should be fine. If you project your AGI will be above $160,000 for the tax year, then up the quarterly payments to 25%. More than likely this would result in you getting some of it refunded at tax filing time. But if you still owed, it would most likely be less than 10% of your total tax liability. That would probably be significantly less than what you had to pay at tax filing time for your 2021 taxes.
He suggested that I take more expenses with the real estate business.
Tax law doesn't "suggest" anything. It defines and directs. You can't go shifting expenses from SCH E to SCH C or vice-versa. SCH E rental expenses are rental expenses. SCH C business expenses are business expenses. We can't go and arbitrarily change that.
I basically only track my mileage and gas using an app for this job.
If you claim vehicle expenses for the SCH C business, or the SCH E business, not a big deal. I doubt it helps much. But since I have no idea of what kind of mileage you incur for either, I'm really not in a position to make any comment one way or the other. However, if you're claiming mileage for both SCH E and SCH C, that complicates matters a bit more. The TTX program can handle it - but miss one checkbox or answer one question wrong, and it will screw things up but good.
My rentals basically manage themselves. I have great tenants who take care of the properties. Rent goes in, mortgages come out each month. If I have to make a repair I call a company and pay for it out of this account.
If you are the one who makes all management decisions on who you rent to, as well has who you hire to perform needed work, maintenance, repairs, etc. on the property, then it sounds to me like you materially participate in your SCH E properties. In other works, you don't pay a 3rd party to handle this stuff for you. However, depending on how one interprets things, there can be conflict with this. See IRS Publication 925 at https://www.irs.gov/pub/irs-pdf/p925.pdf and start reading on page 5 at "Material Participation" in column 3. I myself am not exactly sure of the interpretation of some of the requirements, as they apply to SCH E long term residential rental property.
On the tax front, if your state also taxes personal income, then you will need to make quarterly payments to your state also. If you make those payments a percentage equal to your state's highest tax bracket, then come tax filing time you should be fine and would most likely get some of it refunded from your state.
