If you own investment property—or you’re thinking about buying one—understanding how taxes impact your returns is key. The good news? Real estate continues to offer some of the best tax advantages available to investors, especially when you have a CPA who specializes in this area guiding you.
1. Depreciation: A Hidden Benefit
Depreciation allows you to deduct a portion of your property’s value each year, even if the property is appreciating in real life. This “paper loss” often offsets rental income, helping reduce your overall taxable income.
2. Cost Segregation Studies
For larger properties, a cost segregation study can accelerate depreciation by identifying which parts of a building (like electrical systems or flooring) can be depreciated faster. This can result in tens of thousands of dollars in upfront tax savings.
3. The Power of the 1031 Exchange
If you sell an investment property and buy another one, you can defer paying capital gains tax through a 1031 exchange. It’s a powerful tool for growing your portfolio—but it has strict timing rules, so planning ahead with your CPA is essential.
4. Deductible Expenses
Common deductions include property management fees, mortgage interest, repairs, and insurance. Even travel to check on your rental property can sometimes qualify.
5. Entity Structuring for Protection and Efficiency
Many investors form LLCs or partnerships to separate liability and optimize taxes. The right structure can protect personal assets while offering flexibility in how income is taxed.
Real estate tax strategy isn’t one-size-fits-all, especially in California and Los Angeles markets. A CPA who specializes in real estate can help ensure you’re maximizing every opportunity and staying compliant.
Ready to make your real estate investments work harder for you? Contact Holmes & Associates for a personalized tax strategy consultation.