Posted by Elliot Kravitz, ATP

Essential Tax Tips for Real Estate Investors

Essential Tax Tips for Real Estate Investors

This article sheds light on vital tax tips that can significantly help real estate investors.


  1. Be Organized

If you want to get back the funds you believe you deserve for the tax season, your organization needs to be top-notch. This involves a careful record of your correspondence as Uncle Sam will need to see receipts, documents, and proof should you be slammed with an audit. 

For all real estate bought or sold in the year, you will get a HUD-1 Settlement Statement from the escrow company. This is a closing statement from the government that lists all charges levied against the borrower and seller. The document needs to be part of your tax document as it has information vital to your tax return. 

  1. Keep Properties for More than a Year

Unlike what some TV shows made us believe, flipping properties is not something done in a matter of weeks because a massive chunk of your profit will go to Uncle Sam. You, however, can reduce the tax burden by keeping the property for more than one year. 

Your investment profits are classified as capital gains and will be taxed based on the duration in which you held them and the income. 

Assets held below 12 months will also be subjected to the income tax rate (might be up to 35%), while assets held for over a year will be taxed at the long term rate and might not exceed 15%.

  1. Understand the Pros and Cons of Real Estate Business

  • Get Ready for business taxes. 

Business was good, and you close a lot of real estate deals in a year. Uncle Sam will consider this as a business and not another investment, so be prepared.

Even though everything is treated on a case-to-case basis, if your earning from the real estate is more than half of your entire income, the earnings will transform from capital gains to a method of getting regular income. This will throw you to the higher ordinary income tax rate. There might also be an extra 15.3% tax for the self-employed. 

  • Employ Deductions 

When it comes to the real estate business, deductions are significant benefits that can make a massive difference for your profit. Such tax write-offs are related to rental properties and cover costs such as property tax, mortgage interest, professional fees, operating expenses, car repair and expenses, etc.


  1. Work with a CPA

While there are many avenues to save money as a real estate investor, it is not easy. When you consider the many deductions and tax provisions that can work for your benefit, a Certified Public Accountant or Tax Professional like ELLIOT KRAVITS, ATP. can make the process smooth for you, so you legitimately get back your entire penny.

A trained professional who is well versed in your particular field will be of terrific help when it comes to tax time. You need a real estate investor with vast experience in real estate deductions, and even though their services are not free, the savings in return will offset the expense. 

 Make sure you fight the temptation to use DIY tax software. An accountant or tax professional will help ensure that you make the right tax direction and help handle your unique tax situation. Also, you should speak with a tax professional long before any tax period approaches. 

  1. Employ Depreciation 

The most popular and well-used depreciation approach employed by investors is the MACRS – Modified Accelerated Cost Recovery System. Uncle Sam gives the investor the freedom to deduct their depreciation expense on such residential properties using a factor of 27.5 years and 39 for the commercial real estate. With depreciation, the owner can realize a net loss on their investment property due to wear and tear, regardless of the positive cash flow generated by the property.

The implication of this is that every year, you are allowed to deduct the value of all renovations and improvements (capital expenses on properties such as installing a new garage or adding a water heater). You can calculate this by dividing the entire cost by 27.5 years and then removing the amount from the ordinary taxable income in the year.



Elliot Kravitz, ATP
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