Passive Income Resource Guide
Tax Strategies
165 articles9 sections
Rental income and deductions
- Tax Planning Strategies for Rental Property IncomeStart here Net rental income is taxed at ordinary rates on Schedule E, usually without self-employment tax. Depreciation, passive loss limits, and sale rules shape what you owe.
- Home Office Deduction for Landlords and Real Estate Investors Landlords can deduct a home office only if their rentals are a business and the space has regular, exclusive business use: $5 per square foot or a share of actual costs.
- Real Estate Tax Deductions Checklist for Investors Landlords deduct operating costs on Schedule E in the year paid. Improvements and closing costs are depreciated, and IRS safe harbors let you expense small items.
- Section 199A Deduction for Real Estate Investors Rental income gets the 20% QBI deduction only if the rental is a trade or business or meets the 250-hour safe harbor. Ordinary REIT dividends need neither.
- Travel Expense Deductions for Rental Property Investors Rental trips are deductible on Schedule E: 72.5 cents a mile through June 2026 and 76 cents from July 1, plus airfare, lodging, and 50% of meals on overnight trips.
Selling and deferring gains
- 1031 Exchange Timelines and Rules You Must Follow A 1031 exchange defers tax if a qualified intermediary holds your proceeds and you identify a replacement in 45 days and close in 180 days or by your return due date.
- Capital Gains Tax on Investment Property: What You Owe For 2026, a rental's gain is taxed at up to 25% on depreciation and 0%, 15%, or 20% on the rest, plus a 3.8% tax once MAGI tops $200,000 ($250,000 joint).
- Depreciation Recapture: What Happens When You Sell When you sell a rental, building depreciation is taxed at up to 25%, and depreciation on appliances and other personal property at ordinary rates up to 37%.
- Installment Sales for Real Estate: Spreading Out Tax Payments In a seller-financed sale you report gain as payments arrive, at your gross profit percentage on Form 6252. Ordinary-income recapture is taxed in the year of sale.
- Opportunity Zones: Tax Benefits for Real Estate Investors Invest a capital gain in an Opportunity Zone fund within 180 days. From 2027, tax is deferred 5 years, 10% is excluded, and fund growth is tax-free after 10 years.
- Short-Term Capital Gains on Real Estate: How Flippers Are Taxed A flip held a year or less is taxed at ordinary rates up to 37% for 2026. Dealers also owe 15.3% self-employment tax and lose 1031 and installment options.
Depreciation and cost segregation
- Bonus Depreciation for Real Estate: What Investors Need to Know Rental assets acquired after Jan. 19, 2025, get 100% bonus depreciation in 2026, but only items with lives of 20 years or less, never the building.
- Cost Segregation Studies: Accelerating Depreciation on Rental Property A cost segregation study moves parts of a rental building into 5-, 7-, and 15-year classes for bonus depreciation. When the fee pays off, with the math.
- Depreciation on Rental Property: How to Calculate It Divide the building's basis, not the land, by 27.5 years (3.636% a year), prorated by month in year one. Worked example, Form 4562, and fixing missed years.
Entities, IRAs, and estate planning
- Estate Planning for Rental Property Owners Heirs take a rental at its date-of-death value, so the gain and past depreciation go untaxed; a lifetime gift passes your old basis. The 2026 exemption is $15 million.
- LLC Tax Benefits for Real Estate Investors An LLC rarely lowers federal tax on a rental: a one-member LLC still reports on Schedule E, a multi-member LLC files Form 1065, and states can add yearly charges.
- Self-Directed IRA Real Estate Investing A self-directed IRA can own a rental, but the IRA must pay every cost, you and close family cannot use or work on it, and a mortgage makes part of the income taxable.
Filing, records, and tax help
- Hiring a CPA for Real Estate Investments: What to Look For Hire a paid preparer for a rental sale, 1031 exchange, professional status claim, or missed depreciation. CPAs, enrolled agents, and attorneys can represent you.
- Quarterly Estimated Taxes for Rental Property Investors You generally need 2026 estimated payments if you will owe $1,000 or more after withholding; paying 100% of your 2025 tax (110% above $150,000 AGI) avoids a penalty.
- State Tax Considerations for Real Estate Investors Not all states tax rental income; credits may apply on your home-state or nonresident return. Property and transfer taxes also vary by location.
- Tax Audit Protection for Landlords and Real Estate Investors Keep rental records at least 3 years after filing, and longer for refund claims, property costs, and carried losses. How audits and appeals work.
Passive loss rules
- Passive Loss Rules for Real Estate Investors Rental losses offset only passive income unless an exception applies, such as the $25,000 allowance that phases out between $100,000 and $150,000 of MAGI.
- Real Estate Professional Status: Requirements and How to Qualify You qualify if more than half your work hours, and over 750 hours, are in real property businesses you materially participate in. One spouse must pass alone.
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