How Real Estate Investors Can Reduce Their Tax Bill: Proven Strategies That Work

/ Investment Strategy, Real Estate Accounting, Tax Planning / By

How Real Estate Investors Can Reduce Their Tax Bill: Proven Strategies That Work

Real estate can be a smart way to build long-term wealth—but come tax season, many investors find themselves asking the same question:

“Am I doing everything I can to lower my tax bill?”

If you own rental properties, flip houses, or manage commercial real estate, there are plenty of strategies to help reduce your taxable income—legally and effectively. Here’s a closer look at the key tax-saving moves every real estate investor should know.

1. Depreciation: A Built-In Tax Break

One of the biggest perks in real estate is depreciation—a non-cash deduction that lets you write off the cost of the property over time.

  • Residential properties can be depreciated over 27.5 years
  • Commercial properties over 39 years

Even though your property may be appreciating in value, the IRS lets you deduct part of its cost each year. If you’re not taking full advantage of this, you’re likely overpaying in taxes.

Need help calculating or adjusting depreciation schedules? Our real estate tax specialists can walk you through it.

2. Deduct Operating Expenses

You can deduct ordinary and necessary expenses related to managing your rental or investment property. This includes:

  • Mortgage interest
  • Property taxes
  • Repairs and maintenance
  • Property management fees
  • Utilities (if you pay them as the owner)

The key is proper recordkeeping. Save all invoices, receipts, and proof of payments in case of an audit.

Want support with monthly tracking and reporting? Check out our bookkeeping and accounting services.

3. Leverage the 1031 Exchange

If you’re selling a property and planning to reinvest, a 1031 exchange lets you defer capital gains taxes—as long as you follow the rules.

To qualify:

  • You must reinvest in a like-kind property
  • The new property must be identified within 45 days
  • You must close within 180 days

This strategy is ideal for investors looking to grow their portfolios without a hefty tax bill.

Looking to sell and reinvest in 2025? Our business advisors in Columbus can help plan the exchange timeline and structure.

4. Short-Term Rentals & Self-Employment Taxes

If you’re running Airbnb or short-term rentals, you might be subject to self-employment tax depending on how involved you are in managing the property.

This is different from long-term rentals, which are usually considered passive income. A CPA can help you structure operations to minimize tax exposure—especially if you’re earning substantial income through short-term platforms.

You can learn more about optimizing structure and tax liability through our small business CPA services.

5. Cost Segregation Studies

Want to accelerate depreciation? A cost segregation study allows you to break a property into components—like appliances, lighting, and roofing—and depreciate those assets over shorter periods (5, 7, or 15 years).

This can significantly increase your deductions in the early years of ownership.

This strategy is especially useful for commercial property owners or anyone with newly acquired or renovated buildings.

6. Real Estate Professional Status (REPS)

If you’re heavily involved in real estate, you may qualify for Real Estate Professional Status under IRS rules. This allows you to:

  • Deduct rental losses against active income
  • Avoid passive loss limitations

To qualify, you generally must spend 750+ hours per year in real estate activities and more than 50% of your total working time in the industry.

We’ve helped clients nationwide and locally in Dublin, Powell, and New Albany claim REPS status with proper documentation—reach out if you’re unsure whether you qualify.

7. Maximize Deductions with Entity Structure

Operating under the right business structure—LLC, S Corp, or even partnership—can help protect your assets and offer tax flexibility.

For example:

  • An LLC protects liability and allows pass-through taxation
  • An S Corp might help reduce self-employment taxes on short-term rental income

If you own multiple properties or are planning to scale, now’s the time to review your structure. Learn more about us or schedule a consultation.

Final Thoughts: Turn Your Properties Into a Tax Advantage

Real estate investing offers more than just cash flow and appreciation—it also gives you real leverage at tax time. Whether you’re managing a few rentals or growing a larger portfolio, the right strategies can make a huge difference in what you keep.

At Hogan CPA, we help investors all over Central Ohio create smart, compliant tax strategies that align with their long-term goals. From depreciation planning to 1031 exchanges and beyond—we’ve got your back.

Want to make sure you’re not overpaying in taxes this year?
 Contact Hogan CPA Financial Services to schedule a tax strategy session designed for real estate investors like you.