Summary of What This Blog Covers:
- Uncovers the Most Common Tax Mistakes Rental Property Owners Make
This blog walks through the five biggest missteps landlords make with their taxes from missing deductions to poor recordkeeping and explains how those mistakes can lead to overpayments, IRS scrutiny, or lost tax savings. - Breaks Down Real-World Fixes and Strategies for Smarter Tax Planning
You’ll learn exactly how to avoid each mistake with practical fixes like tracking expenses monthly, evaluating if an LLC truly benefits you, and leveraging proactive year-end planning for better returns. - Highlights Advanced Tax Tactics Like Cost Segregation and 1031 Exchanges
The post dives into how strategic tools like cost segregation studies and 1031 exchanges can accelerate depreciation and defer capital gains, helping landlords significantly reduce taxable income. - Explains the Value of Working with a Real Estate-Focused CPA
With guidance from Insogna CPA, a trusted Austin, Texas CPA firm, readers discover why partnering with a certified public accountant who specializes in rental properties is key to growing a portfolio tax-efficiently and staying compliant year-round.
So, you did it. You bought a rental property. Maybe it’s a single-family home you’re renting out for the first time. Maybe it’s your third cash-flowing duplex and you’re gearing up for more.
You’ve got tenants, rent rolling in, and appreciation on your side.
Now comes the fun part: taxes.
At Insogna CPA, a top-rated Austin, Texas CPA firm, we help property owners across the country get ahead of tax season, minimize their liabilities, and grow their portfolios with strategy, not guesswork.
But we see it all the time: landlords overpaying, underreporting, or missing out on thousands in savings simply because no one explained the rules. Until now.
Here are the top 5 tax mistakes rental property owners make, how they cost you money, and most importantly: how to fix them.
Mistake 1: Missing Out on All Eligible Deductions
You’d be shocked how many landlords leave money on the table every year, especially when it comes to deductions.
The IRS allows rental property owners to deduct all ordinary and necessary expenses related to running and maintaining their rental. But unless you’re keeping proper records, it’s easy to forget or misclassify these expenses.
Major deductions most landlords forget:
- Mortgage interest: Often the largest deduction for real estate investors
- Property taxes: Deductible at both state and federal levels
- Depreciation: A non-cash expense that lowers your taxable income over 27.5 years
- Repairs and maintenance: Immediate deductions for items like paint touch-ups, appliance replacements, and basic upkeep
- Insurance premiums: Includes landlord, hazard, liability, and even umbrella policies
- Legal and professional services: Paying a tax accountant near you, attorney, or property manager? That’s deductible.
- Travel expenses: Visiting your property? That mileage counts.
- Advertising and tenant placement costs
- HOA dues and condo fees
What NOT to do:
Assume your tax software will catch everything. Most off-the-shelf tools don’t specialize in real estate deductions.
Fix it:
Track your expenses monthly, store receipts digitally, and work with a qualified tax preparer near you or a CPA in Austin, Texas who understands the nuances of rental income and deductions.
Mistake 2: Filing Under the Wrong Structure—LLC vs. Sole Proprietor
Let’s talk about the LLC hype.
We’ve heard it all:
- “You have to form an LLC for liability protection.”
- “LLCs save you tons on taxes.”
- “No serious investor holds rentals in their personal name.”
There’s some truth in there but also a lot of misunderstanding.
Sole Proprietor (personal ownership):
- The most common form of ownership
- Income reported on Schedule E
- No entity setup costs or state compliance required
LLC:
- Offers limited liability protection
- Income is still reported on Schedule E unless you elect S-corp status
- May require annual filings, franchise taxes, and separate recordkeeping
In states like California, an LLC will cost you $800 per year minimum in fees even if the rental isn’t generating income.
What NOT to do:
Form an LLC just because your Facebook investing group told you to.
Fix it:
Schedule a conversation with a small business CPA in Austin. At Insogna CPA, we’ll assess your portfolio, risk level, and goals to help you decide whether an LLC (or other structure) actually makes sense for you.
Mistake 3: Not Taking Advantage of Cost Segregation
Here’s one of the most underused strategies in rental real estate:
Cost segregation.
This IRS-approved method lets you accelerate depreciation on parts of your property with shorter lifespans so you can deduct more, sooner.
Here’s how it works:
Instead of depreciating the entire property over 27.5 years, you break it into:
- 5-year assets: Carpet, appliances, furniture
- 7-year assets: Cabinets, lighting fixtures
- 15-year assets: Landscaping, fencing, sidewalks
This results in front-loaded deductions, meaning you reduce your taxable income when you need it most: usually in the early years of ownership.
Why it matters:
- Lowers your tax bill today
- Boosts your cash flow for reinvestment
- Can significantly reduce taxable income even if your property is appreciating
What NOT to do:
Assume cost segregation is only for large commercial properties or institutional investors.
Fix it:
Let our team at Insogna CPA, a respected Austin accounting service, evaluate whether your property qualifies. We coordinate with certified engineers and file everything in compliance with IRS guidelines.
Mistake 4: Inadequate Recordkeeping
We get it. Receipts get lost, mileage logs fall by the wayside, and suddenly, it’s April and your bookkeeping is held together with hope and duct tape.
But if you’re ever audited or just trying to maximize deductions, proper records are everything.
Most common recordkeeping mistakes:
- No separate business account for rental income/expenses
- No saved receipts for services or repairs
- No logs for travel/mileage
- Forgetting to issue W9 tax forms to vendors
- Missing 1099 NEC filings for contractors paid over $600
Fix it:
- Open a dedicated business bank account
- Track all transactions with real estate-focused software
- Use a mileage tracking app
- Work with an enrolled agent or certified public accountant near you who helps you stay on top of reporting deadlines and documentation
We offer services accounting for property owners who want an easier, cleaner system and peace of mind when tax time comes.
Mistake 5: Waiting Until Tax Season to Start Planning
Here’s the difference between a reactive and proactive investor:
The proactive one doesn’t scramble in April.
They make moves in October, November, and December to reduce their tax bill for the current year.
Here’s what you can do before year-end:
- Prepay expenses (insurance, taxes, maintenance)
- Complete repairs or upgrades this year to claim deductions sooner
- Use Section 179 or bonus depreciation on eligible assets
- Consider a 1031 exchange to defer capital gains
- Contribute to retirement accounts (like SEP IRAs for landlords who qualify)
What NOT to do:
Wait until tax season to think about strategy. That’s when your options are limited.
Fix it:
Book a year-end tax planning session with your tax advisor near you. At Insogna CPA, we help investors look forward not just back so they can keep more of their rental profits.
Bonus: Other Commonly Missed Moves
Forgetting to file FBAR:
If you have rental income in foreign accounts, FBAR filing is mandatory. Penalties are steep, don’t skip it.
Not issuing W9s or 1099 NECs:
If you pay a contractor more than $600, you need their W9 and you must file a 1099 NEC with the IRS.
Confusing Schedule E and Schedule C:
If you offer short-term stays with services (like cleaning or meals), your income may fall under Schedule C which could be subject to self-employment tax.
If you’re unsure which applies, call us. We’re your proactive CPA firm in Austin, Texas who actually answers when you need help.
Let’s Recap Your Rental Tax Strategy
✅ What You Should Be Doing:
- Claiming every deduction
- Knowing when an LLC helps and when it doesn’t
- Exploring cost segregation for larger properties
- Tracking expenses and mileage accurately
- Filing forms correctly and on time
- Working with a licensed CPA near you for real estate-specific support
Why Work With Insogna CPA
We’re not a generic tax preparer near you who inputs numbers and calls it a day. We’re a strategic partner who helps you grow your portfolio smartly and tax-efficiently.
When you work with us, you get:
- A highly experienced Austin, TX accountant who understands property investing
- Year-round tax planning, not just April filings
- A team of certified CPAs, chartered public accountants, and taxation accountants
- Personal support that scales with your rental business
Whether you’re managing one short-term rental or building a portfolio across states, we’re the CPA firm in Austin that’s built to serve real estate investors.
Ready to Fix These Tax Mistakes?
If you’re serious about building wealth with real estate, you need a tax strategy to match.
Schedule a consultation with Insogna CPA, your trusted tax accountant in Austin, Texas, and let’s get to work protecting your rental income, reducing your tax burden, and setting you up for growth.
Because your real estate business deserves more than a once-a-year tax return. It deserves a year-round strategy...