Most people dread tax month, but real estate investors know it’s one of the best times to make money.
In today’s WREINvestor Insights, we’re discussing how to take advantage of tax breaks and loopholes made specifically for real estate investors.
Let’s start with the biggest one: Depreciation.
How to Leverage Depreciation Like a Pro
Depreciation is one of the most powerful tools in a real estate investor’s tax strategy. Why? Because it lets you write off the wear and tear of your property (without losing cash.)
How to think about it: You bought a rental property. The IRS says the building portion (not the land) loses value over time, even if your market value is rising. That “loss” can be deducted against your income.
How to take action:
- Break out the value of land vs. building (only the building depreciates.)
- Residential property depreciates over 27.5 years; commercial over 39.
Hire a cost segregation specialist if you want to speed up depreciation and front-load your deductions.
Pro tip: Accelerated depreciation = Major tax savings in the early years of ownership.
Know Your Deductions to Make Every Dollar Count
Owning investment property comes with a laundry list of deductible expenses. You’re leaving money on the table if you’re not tracking these closely. Here’s what you can deduct:
- Mortgage interest
- Property taxes
- Repairs & maintenance
- Insurance premiums
- Property management fees
- Legal and accounting fees
- Marketing expenses for finding tenants
- Travel costs (yes, even that out-of-state inspection trip)
How to take action:
- Keep a detailed log of every expense (even the small stuff adds up.)
- Use accounting software or hire a bookkeeper who understands real estate.
- Match each expense to a property so you’re audit-ready at all times.
Pro Tip: A $1,000 deduction is the same as earning $1,000 (except it’s tax-free!)
Use the 1031 Exchange to Build Wealth Tax-Free
Selling a property? You don’t have to pay capital gains taxes right now if you reinvest using a 1031 exchange.
This IRS code lets you swap one investment property for another without paying taxes on the gain as long as you follow the rules.
Requirements:
- The new property must be of “like-kind” (almost anything in real estate qualifies.)
- You have 45 days to identify potential replacements.
- You must close within 180 days.
How to take action:
- Work with a qualified intermediary (you can’t handle the funds yourself).
- Use this strategy to grow from single-family to multifamily, or into commercial.
Pro tip: Smart investors keep rolling gains into bigger assets—building wealth, tax-free, over decades.
Qualify for REP Status
If you’re all-in on real estate, you may qualify for real estate professional status, and that opens up huge tax advantages.
Unlike passive investors, REPs can use unlimited losses from rental properties to offset active income (like a W-2 or business income).
Qualifications:
- Spend more than 750 hours a year on real estate activities.
Real estate must be your primary business activity.
Action Steps:
- Keep a time log. If the IRS ever asks, you need proof.
- Make sure your spouse qualifies too, it can double your advantage.
- Talk to a tax strategist before filing to make sure you meet the tests.
Pro tip: Gaining this status can be a game changer, especially in high-income households.
Keep More, Grow More
April is the time to get your tax situation dialed in before filing deadlines hit or opportunities expire. Check out these quick wins you can still grab:
- Contribute to an IRA or Solo 401(k): Reduce taxable income with retirement contributions.
- File for an Extension (if needed): Don’t rush and miss deductions—file an extension and get it right.
- Review Last Year’s Return: Missed something in 2023? You can still file an amended return.
Real estate investing is one of the most tax-advantaged wealth strategies out there, but only if you use the tools.
From depreciation to 1031 exchanges to REP status, the IRS gives investors a lot of room to save. Use this April to tighten your tax game, save serious money, and reinvest those savings into your next big move.
Until next time, follow WREIN on Instagram, YouTube, and LinkedIn. Don’t miss our 4.9 star rated Real Estate MasterClass for women: Masterclass
