Capital Gains eCourse > Lesson 12
Lowering AGI with PALs, Home Exemption, REP Status, and More
Lesson 12 of 15 · About a 3-minute read · By Lane Kawaoka, PE · Updated November 2026 · Course home
Short answer
Lowering your adjusted gross income starts with knowing which income is ordinary and which is passive. This lesson covers passive activity losses, the home sale exclusion, real estate professional status and related strategies, plus a 2026 year-end planning session.
New for 2026: Year-End Tax Planning
My latest session on lowering your AGI before December 31: income smoothing around the 24% to 32% bracket jump, the short-term rental loophole and its recapture bill at exit, oil and gas intangible drilling costs (whether you can use them depends on how you own the interest), and other strategies. The original 2024 video on PALs, the home exemption and REP status is below.
Strategies for Lowering AGI
This video covers various tax strategies and how they fit into a holistic approach to reducing your adjusted gross income (AGI).
I’ll also discuss what I call “bracketology” and sharp shooting, where we explore how to position yourself within tax brackets and plan for future capital gains or lower-income years.
Remember, no one else has the same insight into your income, investment exits, and future investment plans. Relying solely on your CPA for tax planning isn’t practical, which is why I always encourage our investors to take charge of their own tax planning. Your CPA’s role is to file your taxes, but it’s up to you to strategically plan for your financial future.
Sorry might not have been the answer you are looking for but this is where a community of ours is so critical to being on the forefront of these best practices and creative ideas. Apply here!
Lesson summary
This video ties several strategies together around one number, your adjusted gross income (AGI). I start with how capital gains and depreciation recapture flow into AGI. Then I cover the capital gains exclusion when you sell your primary home, how passive activity losses (PALs) from rentals and syndications can offset passive gains, real estate professional status, how suspended passive losses carry forward and get released, and cost segregation on rental properties. I also talk about planning across tax brackets, such as timing gains for lower-income years. Your own numbers decide which of these apply.
This is educational content, not tax, legal, or investment advice. We are not attorneys, CPAs, or financial planners. Please let us know if you need a referral to a CPA, lawyer, or other vendor here.
Key takeaways
- Passive losses offset passive income; real estate professional status can change that.
- The home sale exclusion covers up to $250,000 of gain, or $500,000 for married couples filing jointly, if you meet the ownership and use tests.
- Watch the bracket jumps when you time income.
Related reading from the blog
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