Taxes aren’t the most exciting topic, but they can make or break your bottom line as an investor. The good news is, real estate offers some powerful advantages that can lower your tax bill and keep more money in your pocket.
Here are five of the biggest ways real estate can save you money on taxes.
Depreciation Deductions
When you own property, the IRS allows you to take a depreciation allowance. For commercial real estate, that period is 39 years. For residential, it’s 27.5.
What does this mean? You get to deduct a portion of your property’s value each year, even though it may actually be appreciating in the real world. On top of that, bonus depreciation can further reduce the income you report from rent. This deduction alone can shield a surprising amount of your rental income from taxes.
No Payroll Taxes on Passive Income
Income from real estate is considered “passive”. Unlike wages or self-employment income, it doesn’t get hit with Social Security and Medicare taxes.
That difference matters. If you’re self-employed, you’re used to paying more than 15% in payroll taxes on earned income. With rental income, you skip that expense entirely, which means an automatic savings right off the top.
The 20% Pass-Through Deduction
Many investors hold their property in an LLC or S-corp. These entities qualify for the Section 199A deduction, which allows you to deduct up to 20% of qualified business income before it hits your personal tax return.
For investors, that deduction is essentially a bonus. You’re lowering your taxable income simply by structuring ownership through the right entity.
Mortgage Interest Deductions
Chances are, you’re financing your property with a mortgage. While you can’t deduct the principal payments, you can deduct the interest.
This matters because interest is often a major cost in the early years of a loan. Deducting it gives you tax savings while also helping you pay down debt and build equity. It’s one of the ways tax rules quietly reward long-term investors.
Deferring Capital Gains with a 1031 Exchange
Over time, real estate typically goes up in value. If you sell, you owe taxes on that gain – unless you use a 1031 exchange.
A 1031 lets you roll the proceeds from one property into another, deferring the capital gains tax. You’re not avoiding taxes forever, but you are giving yourself more time to reinvest and grow your portfolio before the IRS takes its cut. For investors who play the long game, this strategy can build serious wealth.
Conclusion
Real estate isn’t just about rental checks or appreciation. It’s about using the tools available to grow your wealth strategically, and taxes are a big part of that picture. Depreciation, entity deductions, mortgage interest, and capital gains deferral can all add up to substantial savings.
Many investors we work with value the tax strategies that strengthen their portfolios and protect their returns. While we aren’t accountants or tax specialists, we can connect you with the right resources to ensure you’re saving as much as you can. Contact us today to get started.
