Summary of Blog Covers:
- Explains the Fundamentals of Rental Property Depreciation and Why It’s Essential
This blog demystifies depreciation, showing how it lets rental property owners deduct a portion of a property’s value annually. Lowering taxable income and increasing cash flow while highlighting why so many landlords miss this powerful, non-cash tax benefit. - Introduces Cost Segregation as a Strategy to Accelerate Deductions
It breaks down how a cost segregation study helps investors reclassify property components into shorter depreciation schedules, resulting in faster, larger deductions, and why working with a specialized CPA in Austin, Texas is critical for compliance and optimization. - Outlines Tax Planning Strategies for High-Income Earners Using REPS and STR Rules
The blog walks through advanced strategies like Real Estate Professional Status and the short-term rental loophole, which allow depreciation and rental losses to offset W-2 or business income, providing significant savings for high earners with the right structure. - Covers Long-Term Depreciation Planning Including 1031 Exchanges and Compliance Essentials
It highlights the importance of planning for depreciation recapture, using 1031 exchanges to defer taxes, and staying IRS-compliant through proper documentation, filings, and the support of experienced taxation accountants and certified public accountants.
You Own Rental Property So Why Aren’t You Using This Tax Hack?
If you own rental property, you’re probably familiar with terms like passive income, cash-on-cash return, and maybe even 1031 exchange. But how familiar are you with depreciation?
Most real estate investors don’t think much about it until tax season hits and their CPA mentions it in passing. If you saw “depreciation” on your tax return and brushed it off as an IRS formality, you’re missing out on one of the most powerful tax-saving strategies available.
At Insogna CPA, a top-tier Austin, Texas CPA firm, we help real estate investors like you turn depreciation from a passive line item into an active wealth-building strategy.
Let’s dive deep into how it works, how to optimize it, and how to ensure your accountant is helping you take full advantage of what depreciation can do.
What Is Depreciation and Why It Matters
In simple terms, depreciation allows you to deduct part of your property’s cost each year to reflect wear and tear even if that property is appreciating in market value.
Why it matters:
- It’s a non-cash deduction, which means you’re not spending money to get the deduction.
- It directly lowers your taxable income, reducing how much you owe the IRS.
- It’s available every year for as long as you own the property (up to 27.5 years for residential rentals).
Example:
Let’s say you buy a property for $500,000. You allocate $400,000 to the building (the rest is land, which doesn’t depreciate). Divide that over 27.5 years, and you’re getting about $14,545/year in tax deductions before you even count expenses.
That’s depreciation in action. And if your Austin tax accountant isn’t maximizing it for you, it’s time to upgrade your strategy.
How Depreciation Works: The Basics
The IRS gives rental property owners the ability to depreciate residential real estate over 27.5 years. That means, every year, you deduct a portion of the property’s value from your taxable income.
Depreciation starts the day your property is placed in service (when it’s ready to rent) and continues every year after.
Here’s how the IRS classifies different property components:
- Residential rental building: 5 years
- Commercial property: 39 years
- Appliances, equipment, and furniture: 5 years
- Carpets, flooring, cabinets: 7–10 years
- Landscaping and site improvements: 15 years
But most investors only depreciate their property as one lump asset over 27.5 years. That’s playing it safe and slow.
Let’s show you how to go faster.
Enter: Cost Segregation (The Fast Lane to Tax Savings)
What is cost segregation?
Cost segregation is a tax planning tool that allows you to break a property into multiple asset classes, each with its own depreciation timeline. It’s fully IRS-approved, and it’s how smart investors speed up deductions.
Rather than waiting decades to write off everything, you:
- Classify lighting, cabinets, and flooring as 5- or 7-year property
- Identify site improvements, like driveways or fencing, as 15-year property
- Accelerate bonus depreciation on short-life assets, if eligible
The result?
More deductions now when you’re likely reinvesting or scaling and less taxable income today.
Cost segregation is ideal for properties over $500,000 but is increasingly common for smaller portfolios, too. At Insogna CPA, a respected CPA firm in Austin, Texas, we coordinate engineering-backed studies that follow IRS guidelines to the letter.
This isn’t DIY territory. You need a licensed CPA near you who specializes in real estate and knows how to apply the results strategically.
Depreciation and Passive Losses: Know the Rules
Here’s where high earners often run into confusion.
The IRS classifies most rental income as passive, which means:
- Depreciation and other losses can only offset passive income
- If your income exceeds $150,000, your ability to deduct those losses is limited
- Unused losses are carried forward into future years
Sound frustrating? It doesn’t have to be.
We help our clients unlock those “trapped” deductions using two powerful strategies:
1. Real Estate Professional Status (REPS)
REPS is a designation that allows you to treat rental losses as non-passive—meaning you can use them to offset active income like W-2 wages or business profits.
To qualify:
- You (or your spouse) must work 750+ hours in real estate activities per year
- More than 50% of your working hours must be in real estate
We work with clients to document hours, track activities, and qualify because this status can unlock five or six figures in annual deductions.
2. Short-Term Rental Loophole
Don’t qualify for REPS? If you rent properties on Airbnb or VRBO, you might not need to.
If:
- The average guest stay is less than 7 days
- And you materially participate
…your property may be treated as non-passive, even if you’re not a full-time investor. That means depreciation and other deductions can reduce your regular income.
This is a goldmine for high earners but only if executed correctly with help from a tax advisor near you who understands IRS guidelines on STRs.
Depreciation and the 1031 Exchange
What happens when you sell a depreciated rental?
The IRS comes calling with depreciation recapture, a tax on the amount of depreciation you’ve claimed usually at 25%.
But there’s good news.
Enter: the 1031 exchange.
This IRS-sanctioned strategy lets you defer both capital gains and depreciation recapture taxes by reinvesting proceeds into another like-kind property.
At Insogna CPA, we:
- Help clients identify eligible exchanges
- Coordinate with qualified intermediaries
- File correct paperwork
- Time it to maximize tax deferral
Used properly, a 1031 exchange keeps your money working in real estate, not stuck in taxes.
Compliance Still Matters (And We’ll Help You Stay Ahead)
Even with powerful deductions like depreciation, the IRS expects clean records and proper filings.
At Insogna CPA, we help you stay compliant by handling:
- Schedule E vs. Schedule C reporting
- W9 tax forms for contractors
- 1099 NEC forms for service providers paid over $600
- FBAR filing if rental income touches foreign bank accounts
- Multi-state filings if your rentals cross state lines
If you’re searching “tax preparation services near me” and you’re tired of basic box-checking, work with a team of certified CPAs, chartered public accountants, and taxation accountants who understand your business.
Rental Property Depreciation Checklist
Here’s what we help you implement:
✔ Allocate property value between land and building
✔ Create and track depreciation schedules
✔ Conduct cost segregation studies for faster deductions
✔ Use REPS or STR strategies to unlock passive losses
✔ Plan 1031 exchanges to defer depreciation recapture
✔ Stay audit-proof with receipts, records, and compliance
✔ File all necessary local, state, and federal forms
We don’t just file, we plan.
Why Investors Trust Insogna CPA
We’re not just your average “CPA near you” or tax preparer you call once a year. We’re the team behind some of the smartest tax strategies in Texas real estate.
What makes us different:
- Deep expertise in real estate tax law and cost segregation
- Personalized, year-round support from a CPA in Austin, Texas
- Clear, proactive guidance from a certified professional accountant
- Scalable strategy for portfolios of 1 to 100+ units
- A client-first approach that puts your wealth-building goals first
Whether you’re a hands-on landlord, a short-term rental host, or a passive investor, we’ll make depreciation work for you.
Ready to Start Writing Off More and Keeping More?
Depreciation isn’t just a line on your return, it’s a powerful tool to grow your real estate wealth faster and smarter.
Schedule your consultation with Insogna CPA, your expert Austin tax accountant, and let’s put your tax dollars to work.
We’ll help you build a real estate tax strategy that’s not only legal but optimal.
Because owning rental property isn’t just about collecting rent. It’s about keeping what you earn...