Summary of What This Blog Covers:
- Debunks Five of the Most Costly Myths in Real Estate Tax Planning
This blog breaks down common real estate tax misconceptions like whether you need an LLC, how rental income is taxed, and what expenses are actually deductible so investors can avoid mistakes that lead to overpaying the IRS. - Explains Strategic Tax Tools for Smarter Real Estate Investing
From cost segregation and depreciation schedules to Real Estate Professional Status (REPS) and short-term rental reclassification, the blog highlights advanced strategies that can reduce tax liability and increase cash flow for real estate investors. - Covers Tax Compliance Essentials That Investors Overlook
The blog stresses the importance of staying compliant with IRS requirements, including collecting W9s, filing 1099 NEC forms, tracking quarterly estimates, and preparing for depreciation recapture, all key responsibilities that can be streamlined with help from a trusted CPA firm in Austin, Texas. - Highlights Why Working with a Specialized CPA Makes All the Difference
Whether you’re a new investor or managing a growing portfolio, this blog explains why real estate tax planning requires more than tax software and how working with a licensed CPA near you who understands real estate can lead to long-term financial advantages.
Whether you’re a first-time rental property owner or scaling a multi-state portfolio, one thing is universal: taxes matter. A lot.
You’re in the real estate game to build wealth, not to become an expert in IRS publications or tax codes. But here’s the thing: if you rely on outdated advice or tax software alone, you could be overpaying the IRS every single year.
At Insogna CPA, a real estate-savvy Austin, Texas CPA firm, we help investors like you understand the difference between smart tax planning and missed opportunities. And it often starts with unlearning what you thought you knew.
Let’s break down five of the most common real estate tax myths and how to fix them so you can keep more of your hard-earned money.
1. “I Don’t Need an LLC for My Rental Property.”
Technically, you’re right. You don’t have to own your rental through an LLC. Many new investors start by holding property in their personal name and legally, that’s allowed.
But here’s what you’re not hearing:
- You’re personally liable. If a tenant sues you and you lose, your personal assets (your house, your car, your savings) are exposed.
- It may impact your financing. Some lenders prefer working with LLCs for investment properties. Others penalize you for not separating business and personal finances.
- You may be missing strategic tax benefits. When structured right, an LLC can help with estate planning, pass-through taxation, and separating your rental business from your personal finances.
At Insogna CPA, a go-to small business CPA in Austin, we help you weigh the pros and cons of forming an LLC, understand how it impacts taxes, and structure your portfolio for both protection and long-term growth.
2. “Rental Income Is Always Taxed in the Year I Receive It.”
This one trips up more investors than you’d think.
What’s true:
- Advance rent is taxable the year it’s received. Even if the payment covers next year, it’s income now.
- Security deposits are not taxable as long as they’re refundable and used only for damages.
But here’s what’s often missed:
- You’re taxed on net income, not gross rent. That means every deduction: depreciation, repairs, interest, property management reduces your taxable income.
- Depreciation can offset thousands in income.
- Carryforward losses can be used in future years.
A skilled Austin, TX accountant can help you structure and report rental income in a way that reduces your current and future tax burden.
3. “Everything I Spend on My Property Is Deductible.”
This one feels like it should be true. But the IRS sees things a little differently.
What’s immediately deductible:
- Repairs (fixing a leak, replacing a broken appliance)
- Property management fees
- Insurance premiums
- Advertising
- Travel to and from the property
What must be depreciated:
- Capital improvements (roof replacements, HVAC systems, new flooring)
- Appliances if part of an overall renovation
- Major upgrades to the structure or property systems
This distinction matters. Mislabeling an improvement as a repair could raise IRS scrutiny. That’s why our chartered professional accountants and taxation accountants walk you through each expense category, so nothing gets misfiled.
At Insogna CPA, a full-service Austin accounting firm, we make sure you know what qualifies for immediate deduction and what needs to be depreciated over time.
4. “I Don’t Need a CPA Until I Own Multiple Properties.”
We hear this one all the time, usually from folks who are now fixing avoidable mistakes from their first return.
The truth is, even one property can complicate your taxes more than you think.
Here’s why:
- Depreciation starts the moment your property is placed in service. If you don’t structure it right from the start, you could miss thousands in deductions.
- Entity structure matters from day one. Changing it later often involves legal fees and tax headaches.
- The IRS treats short-term rentals and long-term rentals differently. And that distinction matters.
Working with a CPA in Austin, Texas from the start means you’ll be able to optimize deductions, document everything properly, and stay IRS-compliant before tax season becomes a mad scramble.
5. “My Tax Software Catches All My Deductions.”
We love a good tech tool. But your tax software is only as smart as the person using it and it won’t ask the same questions a real CPA will.
What your tax software won’t do:
- Recommend a cost segregation study to accelerate depreciation
- Help you qualify for Real Estate Professional Status (REPS)
- Plan for 1031 exchanges to defer capital gains
- Distinguish between passive vs. non-passive income under IRS rules
Tax software is great for basic returns. But when you own rental property, have multiple income streams, or plan to scale your portfolio, you need real, human insight from a licensed CPA near you who specializes in real estate.
At Insogna CPA, one of the most responsive CPA firms in Austin, Texas, we build your tax strategy around your goals, not just your past income.
Thinking About Selling? Don’t Forget Depreciation Recapture
Let’s talk about what happens when you sell.
You’ve been deducting depreciation for years, great! But now the IRS wants a piece of that in the form of recapture tax, typically at 25%.
Want to avoid that hit?
Consider a 1031 exchange. This IRS-sanctioned strategy lets you sell one property, reinvest the proceeds into a new one, and defer taxes on both capital gains and depreciation recapture.
At Insogna CPA, we help investors:
- Navigate exchange timelines
- Coordinate with qualified intermediaries
- Ensure full IRS compliance
- Manage multi-state tax filings
Don’t wait until the sale closes. Talk to a tax advisor near you before your property hits the market.
Compliance Matters Even for the Savvy Investor
All the deductions in the world won’t help you if your filings aren’t correct.
That’s why our clients rely on us for:
- W9 tax form collection
- 1099 NEC filings for contractors paid over $600
- FBAR filing if rental income touches foreign bank accounts
- Schedule E vs. Schedule C classifications
- Quarterly estimate tracking and year-end tax planning
A proactive approach with your Austin accounting service means no surprises and a cleaner path to building wealth.
Real Estate Tax Planning Filing Checklist
Before you file, double-check that you’ve: ✔ Properly tracked and categorized all expenses
✔ Filed W9s, 1099 NECs, and FBAR forms
✔ Separated building vs. land value for depreciation
✔ Considered cost segregation for properties over $500,000
✔ Explored REPS or STR reclassification for passive loss deductions
✔ Planned for depreciation recapture or 1031 exchanges
✔ Partnered with a certified CPA near you who understands real estate
Why Real Estate Investors Choose Insogna CPA
You’re not just filing a return, you’re growing a business. You need more than software or a once-a-year tax meeting.
At Insogna CPA, your trusted Austin, TX accountant, we provide:
- Deep real estate tax experience across residential and commercial investments
- A full team of certified public accountants, chartered professional accountants, and taxation accountants
- Year-round tax help, including cost segregation analysis, entity structuring, and 1031 exchange tax strategy
- Personalized planning that scales with your portfolio
- One of the most responsive, client-focused CPA firms near you
Whether you’re navigating your first Schedule E or your tenth property sale, we’re here to help you plan smarter, file stronger, and keep more of what you earn.
Schedule Your Free Tax Review Today
Still wondering if your tax strategy is as strong as your investment strategy?
Let’s talk.
Book your free consultation with Insogna CPA, your real estate-focused Austin, Texas CPA, and let’s make sure your next return is more than just filed. It’s optimized for growth.
Because in real estate, it’s not about what you make. It’s about what you keep...