Tax on Rental Income

Summary of What This Blog Covers:

• Explains How Rental Income Is Taxed and What Investors Must Report
  The blog outlines how rental income is classified by the IRS, what counts as taxable income (including advance rent and kept deposits), and how real estate investors can reduce their tax liability through strategic expense deductions.
• Covers Key Real Estate Tax Deductions and Depreciation Strategies
  From mortgage interest and property taxes to depreciation and property management fees, this guide helps landlords identify commonly missed deductions and optimize their tax savings with the help of an experienced Austin, Texas CPA.
• Breaks Down Passive Loss Limitations and How to Legally Work Around Them
  The post explains the IRS’s passive activity rules and introduces two powerful strategies (Real Estate Professional Status (REPS) and the short-term rental loophole) that allow high-income earners to deduct real estate losses against other income.
• Highlights Long-Term Tax Planning Tools Like 1031 Exchanges and Compliance Must-Haves
  The blog walks through what happens at sale including depreciation recapture and how a properly executed 1031 exchange can defer taxes, while also emphasizing the importance of compliance tasks like issuing W9s, 1099 NECs, and FBAR filings.

Filing Taxes on Your Rental Property? Let’s Make Sure You’re Doing It Right

Owning rental property is a powerful way to build wealth. Cash flow, long-term appreciation, leverage, you know the drill. But when tax season rolls around, many investors start asking, “Wait… am I doing this right?”

Spoiler alert: If your current tax planning consists of dumping a stack of receipts on your accountant’s desk and crossing your fingers, it’s time for an upgrade.

At Insogna CPA, a real estate-focused Austin, Texas CPA firm, we work with property owners who want to do more than file on time. They want to build a tax strategy that protects their profits.

Whether you’re new to rental income or scaling a multi-state portfolio, here’s what you need to know before filing your next return.

How Rental Income Is Taxed and How to Keep More of It

Let’s start at the beginning.

Yes, rental income is taxable, but the rules are very different from how your W-2 or business income is taxed.

What counts as rental income?

• Rent payments from tenants
• Advance rent (even if it’s for future months)
• Lease cancellation fees
• Kept security deposits (if applied toward unpaid rent or repairs)

What’s not income (yet)?

• Security deposits that are refundable
• Expense reimbursements (as long as they’re directly related)

Here’s the good news:

• Rental income is considered passive, so it’s not subject to self-employment tax

   

• You’re only taxed on net income—meaning, after deductions
• You report everything on Schedule E, which flows through to your personal return

Smart planning from a CPA in Austin, Texas means structuring things correctly so you’re only taxed on the income you keep, not the gross rent you collect.

The Real Estate Investor’s Deduction Playbook

This is where strategy really starts to pay off.

Real estate investors have access to one of the longest deduction lists in the tax code and every one of them directly reduces taxable income.

Common deductions include:

• Mortgage interest

   

• Property taxes

   

• Depreciation (a major one—more on that soon)
• Repairs and maintenance

   

• Insurance premiums

   

• Utilities (if paid by you)
• HOA or condo fees

   

• Property management costs

   

• Advertising and marketing expenses

   

• Travel and mileage related to managing the property
• Legal and professional fees, including your Austin tax accountant

   

Deductions investors often miss:

• Cell phone or internet costs (if used for managing rentals)
• Subscriptions to real estate publications or tools
• Home office expenses if you manage from home
• Bank fees and interest on property-related loans

At Insogna CPA, we provide real estate-specific services accounting so you can track every deduction with confidence and ensure you’re claiming every dollar you deserve.

Depreciation: Your Secret Weapon for Long-Term Tax Savings

If you own rental property and you’re not using depreciation, you’re giving away free money to the IRS.

What is depreciation?

It’s a non-cash deduction that allows you to write off the cost of your rental building (not the land) over 27.5 years for residential properties.

Example:

Buy a rental for $500,000
 Allocate $400,000 to the building
 Divide that by 27.5 years
 That’s over $14,500/year in deductions, every year, no out-of-pocket cost required

This deduction alone can wipe out your taxable rental income if used properly.

Even better? You can accelerate this deduction with a cost segregation study, which we coordinate for clients at Insogna CPA, one of the most experienced CPA firms in Austin, Texas for real estate.

Passive Activity Loss Rules: What They Are and How to Work Around Them

The IRS classifies rental income as passive, and this classification limits how much you can deduct.

Key rules:

• Passive losses can only offset passive income

   

• If your income is under $100,000, you may be able to deduct up to $25,000 in passive losses

   

• Between $100,000 and $150,000, that deduction phases out
• Above $150,000? Passive losses are carried forward unless you qualify for an exception

That means many high-income earners end up sitting on “paper losses” they can’t use. Unless…

1. Real Estate Professional Status (REPS)

If you or your spouse:

• Spend 750+ hours/year on real estate
• And more than 50% of your working hours are in real estate…

…you may qualify as a real estate professional, and your rental losses can offset active income.

We help clients qualify and document this status with help from our team of certified public accountants, taxation accountants, and enrolled agents. Because when done right, REPS can unlock massive tax savings.

2. Short-Term Rental Loophole

Even if you don’t qualify for REPS, you can still use losses to offset other income if you own a short-term rental.

Requirements:

• The average guest stay is under 7 days

   

• You materially participate (manage or oversee operations)

This turns your short-term rental into non-passive income, allowing you to deduct depreciation and other losses against your day-job income.

STRs are one of the most powerful tools in the code when used correctly. That’s where your tax advisor near you comes in.

What Happens When You Sell Your Property?

Depreciation Recapture

All those depreciation deductions? The IRS remembers them when you sell.

You may have to pay depreciation recapture tax, typically at 25% of the amount you’ve depreciated.

Solution? A 1031 Exchange

A 1031 exchange lets you sell a property and reinvest in a new one, deferring taxes on both capital gains and depreciation recapture.

We’ve helped clients across multiple states successfully execute exchanges that saved tens of thousands in taxes.

If you’re selling, talk to a certified CPA near you before you list. A smart plan today can save you a fortune tomorrow.

Don’t Skip the Compliance Details

Great tax planning means nothing if you forget to file the right forms.

At Insogna CPA, we help investors stay audit-ready and stress-free with:

• Schedule E vs. Schedule C reporting
• W9 tax forms for contractors
• 1099 NEC filings for vendors paid over $600
• FBAR filing if rental income touches foreign accounts
• Multi-state filings for out-of-state investments

Our Austin accounting service includes quarterly reviews, estimated payment tracking, and audit protection because compliance isn’t optional, and neither is peace of mind.

Real Estate Tax Planning Checklist

Use this before you file:

✔ Classify property type and structure (LLC, personal, S-corp)
 ✔ Separate land and building for depreciation
 ✔ Claim every possible deduction
 ✔ Create and manage a depreciation schedule
 ✔ Explore cost segregation for properties over $500,000
 ✔ Determine if REPS or STR rules apply
 ✔ Use 1031 exchange to defer gains if selling
 ✔ File required forms: W9, 1099 NEC, FBAR
 ✔ Work with a licensed CPA who specializes in real estate

Why Investors Choose Insogna CPA

We’re more than just a tax preparer near you. We’re a full-service tax and accounting partner who helps you scale smarter.

What we bring:

• Deep experience in real estate tax law

   

• Full team of certified CPAs, chartered professional accountants, and certified general accountants

   

• Real-world knowledge of Austin accounting and national investment structures
• Personalized, year-round support, not just during tax season
• Strategic planning, including 1031 exchange support, entity structuring, and cost segregation analysis

   

If you’re managing even a single rental, you deserve a team that understands the tax landscape inside and out.

Book Your Strategy Session Today

Ready to stop guessing and start saving?

At Insogna CPA, your go-to Austin, TX accountant, we help real estate investors build tax strategies that grow with their portfolios.

Whether you need tax help for a new rental, a better bookkeeping system, or advanced real estate tax planning, we’ve got you covered.

Schedule your consultation today and let’s build a filing plan that’s not just IRS-ready but wealth-ready...`

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...

Summary of What This Blog Covers:

• Uncovers Why High-Income Earners Often Miss Key Real Estate Tax Benefits
  This blog explains how most successful business owners overlook powerful rental property tax strategies due to misconceptions about passive loss limitations, basic tax software, or passive CPAs and how real estate can unlock substantial savings.
  
  
• Explores Six High-Impact Ways Rental Properties Reduce Tax Liability
  From depreciation and cost segregation to short-term rental loopholes and real estate professional status, the blog outlines specific tactics that can dramatically lower a high earner’s taxable income.
  
  
• Covers Compliance Essentials for Real Estate Investors
  You’ll learn what forms to file, how to classify rental income properly, and why clean documentation is essential, especially if you’re managing multiple properties or operating across states.
  
  
• Positions Insogna CPA as a Strategic Tax Partner for Long-Term Wealth
  The blog highlights why high earners choose Insogna CPA for real estate tax planning. Offering not just tax prep, but proactive strategy, year-round guidance, and personalized support from a certified public accountant in Austin, Texas.

You’re Crushing It in Business… So Why Is Your Tax Bill Crushing You?

Let’s talk about a not-so-fun reality of high-income success: taxes.

You’ve built something amazing. Your business is thriving, you’re investing in your growth, and revenue is strong. But every spring, it feels like you’re writing a massive check to the IRS and wondering, “How is this still legal?”

If this sounds familiar, you’re not alone.

At Insogna CPA, a leading Austin, Texas CPA firm, we work with high-income earners—agency founders, tech consultants, creative entrepreneurs, doctors, and business owners—who want smarter, more proactive solutions for lowering their tax burden.

And one of the most overlooked opportunities? Rental real estate.

We’re not saying you have to become a full-time landlord. But if you want to pay less in taxes and build long-term wealth, real estate is one of the most effective tools in the tax code.

Here’s how rental properties can help high-income earners stop overpaying and start planning.

Why High Earners Miss Out on Rental Property Tax Benefits

Real estate isn’t new. But what’s surprising is how few high-income earners truly understand how to use it as a tax strategy.

Here are three reasons most people leave money on the table:

1. They Assume Passive Losses Don’t Help Them

Under IRS rules, passive losses (like those from rental properties) generally can’t offset active income unless you meet certain requirements. So most people just give up.

But here’s the thing: there are exceptions. With the right structure, classification, and documentation, passive losses can reduce your tax liability. It just takes some planning from an experienced tax advisor near you who knows real estate inside and out.

2. Their CPA Isn’t Being Proactive

Not all accountants are created equal. Many are good at filing your numbers but bad at helping you lower them. If your current tax preparer near you isn’t talking to you about depreciation, cost segregation, real estate professional status, or even a 1031 exchange, they’re leaving money on the table.

3. They’re Relying on Basic Tax Software

Tools like TurboTax are great for W-2 employees with a simple return. But if you’re earning multiple six figures, running a business, and thinking about long-term strategy? You need a licensed CPA in Austin, Texas who knows how to get tactical with your tax planning.

How Rental Properties Can Lower Your Tax Bill

Let’s get into the good stuff: how real estate can actually save you money on your taxes without gimmicks or sketchy loopholes.

Here are six ways we help high-income earners reduce their tax burden using rental properties:

1. Depreciation: A Legal Way to Lower Your Taxable Income

Depreciation is one of the best gifts the IRS gives to real estate investors.

It allows you to deduct a portion of a property’s cost (excluding land) every year over 27.5 years for residential real estate.

Real-World Example:

You buy a $650,000 duplex. After allocating $550,000 to the building, you can deduct $20,000+ annually in depreciation even if your property’s value is going up.

That’s $20,000 off your taxable income every year for nearly three decades.

Working with a strategic Austin tax accountant (like our team at Insogna CPA), you can accelerate depreciation even further with a cost segregation study.

2. Cost Segregation: Accelerate Deductions, Maximize Cash Flow

Instead of spreading depreciation evenly, a cost segregation study breaks the property into components (appliances, lighting, flooring) that can be depreciated faster for over 5, 7, or 15 years.

Why it matters:

• Front-loads tax savings
  
  
• Boosts early-year cash flow
  
  
• Reduces your overall tax bill in the years you need it most
  
  

A great strategy for properties over $500,000 but increasingly useful even for smaller investments.

Our Austin accounting service partners with engineers and handles the tax reporting for you so the savings are real, and the compliance is locked in.

3. Real Estate Professional Status (REPS): The Ultimate High-Earner Advantage

If you or your spouse qualify as a real estate professional (under IRS rules), you can use rental losses to offset active income including your business income or W-2 earnings.

REPS Requirements:

• Spend 750+ hours per year materially participating in real estate
  
  
• More than 50% of your working time is in real estate
  
  

Why it matters:

• Unlocks passive losses
  
  
• Can wipe out a significant portion of your tax liability
  
  
• Works even better with cost segregation + depreciation
  
  

Not sure if you qualify? As a small business CPA in Austin, we’ll help you track your hours, document participation, and file properly.

4. Short-Term Rentals: The Loophole Most High Earners Overlook

Thinking of going the Airbnb route? Here’s what you need to know:

Short-term rentals (STRs) where the average guest stay is less than 7 days, don’t always fall under passive activity rules. This means you may be able to deduct rental losses against ordinary income, even if you don’t qualify as a real estate professional.

Benefits of STRs:

• No need for REPS (in some cases)
  
  
• Faster depreciation through asset turnover
  
  
• Flexible use as investment + personal/vacation home
  
  

There are rules (of course), and you’ll want a proactive CPA office near you to make sure you’re compliant. But when structured right? Short-term rentals can create a tax shelter and generate great income.

5. Home Office Deduction: Easy Savings Most High Earners Miss

If you’re managing your rental properties or even your business, from home, you may qualify for the home office deduction.

A percentage of your:

• Rent or mortgage
  
  
• Utilities
  
  
• Internet
  
  
• Home maintenance
  
  

…can all be deducted, as long as the space is used exclusively for work.

We’ll help you calculate this properly as part of our tax preparation services near you, no guessing required.

6. 1031 Exchange: Keep Growing, Keep Deferring Taxes

Planning to sell a property and buy another?

With a 1031 exchange, you can reinvest your profits into another “like-kind” property and defer capital gains taxes.

This is one of the most powerful tools available to real estate investors but only if it’s executed properly.

At Insogna CPA, we’ve helped clients across multiple states and asset classes complete successful exchanges. From paperwork to timelines to compliance, we’ve got you covered.

Let’s Not Forget Compliance: Where High-Earners Get Tripped Up

Even with all these savings, compliance is key. Here’s what many high earners overlook:

You may need to:

• File W9 tax forms for contractors and vendors
  
  
• Issue 1099 NEC forms for anyone you pay over $600
  
  
• Submit FBAR filings if you use foreign accounts for rental income
  
  
• Correctly classify your income on Schedule E or Schedule C
  
  
• File multi-state returns for out-of-state property investments
  
  

Our team of certified CPAs, chartered professional accountants, and enrolled agents keeps your filings clean, your documentation audit-ready, and your strategy airtight.

Let’s Recap Your Real Estate Tax Strategy as a High Earner

What You Could Be Doing:

✔ Claiming depreciation annually
 ✔ Accelerating deductions with cost segregation
 ✔ Tracking and deducting every eligible expense
 ✔ Qualifying (or leveraging) REPS or STR loopholes
 ✔ Using 1031 exchanges to build tax-deferred wealth
 ✔ Working with a real estate-savvy CPA near you for proactive planning

Why High Earners Choose Insogna CPA

You’re not looking for a “tax preparer near you” who shows up once a year and prints out a return. You’re looking for:

• A strategic partner
  
  
• A growth-focused tax team
  
  
• A responsive, experienced Austin, TX accountant who understands your goals
  
  

At Insogna CPA, we deliver all of that. Backed by decades of experience in services accounting, entity strategy, real estate tax planning, and high-net-worth consulting.

We’re not just a CPA in Austin, we’re your personal tax strategist for the long game.

Ready to Build a Smarter, More Strategic Tax Plan?

You’ve already proven you can earn. Now let’s make sure you keep more of it.

Whether you’re just getting started with real estate or scaling up your rental empire, we’re here to help you:

• Reduce your tax liability
  
  
• Stay compliant
  
  
• Build wealth more efficiently
  
  
• Use the tax code to your advantage, not just react to it
  
  

Schedule a consultation with Insogna CPA today. Your go-to Austin tax accountant and strategic partner for smarter investing, lower taxes, and real estate-backed growth...

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...

So, you finally did it. You bought a rental property! Welcome to the world of passive income, appreciation, and… complicated tax rules.

If you’ve started researching rental property taxes, you might already feel overwhelmed.

“Do I have to pay self-employment tax on rental income?”
“What can I deduct to lower my tax bill?”
“How does depreciation work?”

If this sounds familiar, you’re not alone. Most first-time landlords go through the same confusion. But don’t worry, we’ve got you covered.

At Insogna CPA, a trusted Austin, Texas CPA firm, we help real estate investors like you maximize deductions, stay IRS-compliant, and keep more of your hard-earned rental income. Let’s break it all down in simple, no-BS terms so you can handle tax season like a pro.

How Rental Property Income is Taxed (Without the Confusion)

First things first: Yes, rental income is taxable. But it’s not the same as getting taxed on your paycheck.

Key things to know:

• Rental income is considered passive income, so it’s NOT subject to self-employment tax.
• You’re taxed on your profit, not just total rent collected, which means deductions are your best friend.
• You report rental income and expenses on Schedule E of your tax return.

The key takeaway? The IRS wants their cut, but they also give landlords plenty of tax breaks if you know how to use them.

The Best Rental Property Tax Deductions (AKA, How to Pay Less in Taxes)

Owning rental property comes with a lot of deductible expenses—which means more tax savings for you.

Here are the top deductions every landlord should know about:

✔ Mortgage Interest – Your biggest tax write-off. Interest on your rental loan? Fully deductible.

✔ Property Taxes – State and local property taxes can be written off on your return.

✔ Repairs & Maintenance – Fixing a broken AC, patching up leaks, or replacing an appliance? Deductible.

✔ Insurance Premiums – Rental property insurance, liability coverage, and even umbrella policies can be deducted.

✔ Property Management Fees – If you hire someone to handle tenants and maintenance, their fees are a write-off.

✔ Utilities (If You Pay Them) – If you cover water, gas, or electricity, those expenses are deductible too.

✔ Travel Expenses – If you drive or fly to check on your rental, you can deduct mileage, flights, and even lodging—if the trip is business-related.

Pro Tip: Keep receipts for everything. The IRS loves documentation, and a simple spreadsheet (or using an app like QuickBooks) can make tax time way easier.

Depreciation: The Secret Tax Advantage of Owning Rentals

One of the biggest tax benefits of real estate? Depreciation.

What is Depreciation?

Depreciation allows you to spread out the cost of your property over 27.5 years, lowering your taxable income every single year.

What Can You Depreciate?

• The cost of the building (not the land).
• Big improvements (new roof, HVAC, flooring).
• Appliances and furniture used for the rental.

Example: Bought a rental for $275,000? If the building is worth $200,000, you can deduct about $7,272 per year in depreciation. That’s a major tax break.

Mistake to avoid: Not claiming depreciation. It’s required, and if you don’t claim it now, the IRS will still tax you later when you sell the property.

How Insogna CPA helps: As an experienced CPA in Austin, Texas, we make sure you get every depreciation deduction you’re entitled to without IRS headaches.

Passive vs. Active Income: What It Means for Your Taxes

Not all rental income is taxed the same. Your classification as a passive or active investor impacts how much you can deduct.

Passive Income (Most Landlords)

• Rental income is passive by default (which is a good thing—it avoids self-employment tax).
• Passive losses (like depreciation) can only offset passive income not your W-2 salary.
• If your total income is under $150,000, you may be able to deduct up to $25,000 in passive losses per year.

Active Income (Real Estate Professionals)

If you spend 750+ hours per year managing properties, you may qualify as a real estate professional—which means you can deduct rental losses against ALL income (including W-2 earnings).

How Insogna CPA helps: Not sure where you fall? We’ll analyze your situation and ensure you’re using the best tax strategy.

How to Report Rental Income (Without Screwing It Up)

You’ll report all rental income and expenses on Schedule E (Form 1040).

What you’ll need:

• Total rent collected
• Expense records (utilities, repairs, insurance, etc.)
• Depreciation calculations
• Mortgage interest and property tax statements

Common mistakes to avoid:

• Forgetting to report all rental income (yes, that includes security deposits used for repairs).
• Misclassifying repairs vs. improvements (repairs = immediate deduction, improvements = depreciated over time).
• Not tracking travel costs (visiting your rental for business? Deductible).

How Insogna CPA helps: As a leading Austin accounting service, we handle the complex reporting for you, ensuring no deductions are missed and no IRS mistakes happen.

Rental Property Tax Checklist for First-Time Landlords

✔ Keep organized records of all income and expenses.
✔ Claim every deduction possible (mortgage interest, insurance, repairs, etc.).
✔ Use depreciation to lower taxable income.
✔ Know if your rental income is passive or active.
✔ File your rental property taxes properly on Schedule E.

Want to pay less in taxes and avoid IRS headaches? Let’s make sure you’re set up for success.

Need Help with Rental Property Taxes? We’ve Got You.

Real estate investing should build your wealth not drain it with unnecessary taxes. Let Insogna CPA handle the tax side, so you can focus on growing your investments...

Schedule a consultation today with Insogna CPA, your go-to Austin, TX accountant, and start maximizing your rental tax savings!

Summary of What This Blog Covers:

• Breaks Down Common Misconceptions About LLCs for Real Estate
  This blog clarifies widespread myths about forming an LLC for rental properties like the false belief that it automatically saves on taxes or provides blanket liability protection and explains what it actually does (and doesn’t) offer.
  
  
• Compares LLCs and Umbrella Insurance for Liability Coverage
  Readers learn the real differences between forming an LLC and buying umbrella insurance, helping them decide which structure better suits their rental strategy based on cost, protection, and simplicity.
  
  
• Explains the Tax Impact and Compliance Requirements of LLCs
  The post dives into the tax implications of LLC ownership, including pass-through taxation, additional filing obligations, and why most rental LLCs don’t reduce tax liabilities without proper planning.
  
  
• Provides a Strategic Framework for Long-Term Portfolio Planning
  With guidance from a trusted Austin, Texas CPA firm, readers discover when an LLC makes sense for scaling, estate planning, 1031 exchanges, and reducing risk alongside tips for staying compliant and future-ready.

So, you bought a rental property. Maybe it’s your first, maybe it’s the fifth deal you’ve closed this year (look at you go). Either way, the monthly income is rolling in, the tenants are texting you less often than expected, and your equity is climbing.

Then the question hits:
 “Should I put my rental property in an LLC?”

If you’ve been anywhere near a real estate investing podcast, Facebook group, or late-night investor Reddit thread, you’ve probably heard:

• “You HAVE to use an LLC! What if someone sues you?”
  
  
• “It’s a tax strategy! You’ll save thousands!”
  
  
• “No one seriously invests without one!”
  
  

But here’s the thing: the truth is more nuanced.

At Insogna CPA, a leading Austin, Texas CPA firm, we work with rental property owners, landlords, and real estate investors every day. We help clients make strategic, not emotional, decisions because an LLC is a legal structure, not a magic shield.

Let’s dig into the real pros, cons, tax implications, and legal considerations of using an LLC for your rental property and how to know if it’s truly right for you.

What Most Investors Get Wrong About LLCs

LLCs are often misunderstood in the rental real estate space. The myths swirl faster than a bidding war in a hot market.

Let’s set the record straight.

Myth #1: An LLC protects everything

LLCs can protect your personal assets but only if you manage them correctly. That means:

• Maintaining a separate bank account
  
  
• Keeping detailed books
  
  
• Filing necessary documents
  
  
• Treating it like a business, not a side hustle
  
  

Otherwise, a court can pierce the corporate veil and you’re personally on the hook.

Myth #2: An LLC automatically reduces your taxes

Wrong again. Most rental property LLCs are pass-through entities. That means your income flows through to your personal tax return, where it’s taxed the same as if you owned the property outright.

Myth #3: You don’t need insurance if you have an LLC

We wish it were that simple. The LLC structure protects your personal assets, not the asset itself. You still need robust landlord insurance and possibly an umbrella policy to cover lawsuits, accidents, and property damage.

As your trusted Austin, TX accountant, our job isn’t to sell you on an LLC. It’s to guide you to the smartest structure for your goals, your risk profile, and your portfolio growth plans.

LLC vs. Umbrella Insurance: A Practical Comparison

We’ve had this conversation hundreds of times. Most investors want to know if they can get the protection of an LLC without the red tape. Enter: umbrella insurance.

Here’s a side-by-side comparison:

Our recommendation:

• For first-time landlords or small portfolios, umbrella insurance may be all the protection you need.
  
  
• If you have multiple properties, partners, or significant personal assets, adding LLCs can create strategic risk separation.
  
  

At Insogna CPA, a seasoned tax consultant near you, we help you evaluate your entire risk profile and build a structure that doesn’t just work now but works as you scale.

When Does an LLC Make Sense for Your Rental Property?

Let’s get real: LLCs are not bad. They’re just often misused or misunderstood.

Here’s when they really shine:

✅ You own multiple rental properties

An LLC can separate liabilities and shield your entire portfolio from a single incident. We often recommend one LLC per property or using a Series LLC where available.

✅ You plan to bring on partners

LLCs allow you to outline ownership percentages, responsibilities, and profit-sharing in a formal operating agreement. Something you’ll want before anyone wires a dime.

✅ You’re investing across state lines

Out-of-state properties come with registration and filing obligations. Forming an LLC can help centralize your operation, especially if you plan to scale across markets.

✅ You have a high net worth

If you’ve built significant personal assets, an LLC offers an added layer of legal protection if managed properly.

⚠️ When might you not need an LLC?

• You own one or two rental units and have a solid insurance policy
  
  
• You’re renting a part of your primary residence
  
  
• You live in a state with high LLC fees (looking at you, California—$800 per year)
  
  

Working with an experienced small business CPA in Austin, we help you assess the real risk vs. reward.

The Tax Reality: What an LLC Actually Does (and Doesn’t)

Here’s where investors really get tripped up.

What an LLC doesn’t do:

• It does not automatically reduce your taxes
  
  
• It does not add new deductions
  
  
• It does not change your income classification
  
  

In most cases, your LLC will be taxed as a disregarded entity, meaning the income lands on your personal return via Schedule E. You’ll still claim depreciation, mortgage interest, repairs, and other common deductions.

What it can do:

• Help you track income and expenses more cleanly
  
  
• Allow for tax elections (like an S-corp) if you’re offering substantial services
  
  
• Enable partner profit splitting and other planning opportunities
  
  

And yes, forming an LLC may create extra tax filings:

• State-level franchise taxes
  
  
• Annual reports and fees
  
  
• Possible need for a separate CPA-prepared return for your LLC
  
  

This is why rental property investors choose Insogna CPA for tax preparation services near them. We keep your filings organized, compliant, and optimized for long-term gain.

Compliance Isn’t Optional (If You Want Protection to Stick)

If you decide to form an LLC, great. But now it’s time to treat it like a real business.

You’ll need to:

• Open a separate LLC bank account
  
  
• Maintain clean books (we provide services accounting to help with this)
  
  
• File state-specific forms and franchise taxes
  
  
• Keep W9 tax forms for vendors and file 1099 NECs when needed
  
  
• File an FBAR if your rental income flows through a foreign account
  
  

The IRS and courts want to see that your LLC is operating separately from your personal finances. If you co-mingle funds or fail to document income, your protection could be voided.

Need help managing this? We’re a licensed CPA near you with a deep bench of experts including enrolled agents, certified general accountants, and chartered public accountants ready to keep your structure airtight.

Thinking Bigger? Let’s Talk Long-Term Planning

Forming an LLC isn’t just about today, it’s about preparing for tomorrow.

Whether you’re planning a 1031 exchange, transferring properties to your children, or building a real estate brand, your structure matters.

We help clients:

• Build multi-LLC portfolios
  
  
• Navigate SALT deduction limits with pass-through entity taxes
  
  
• Reduce audit exposure
  
  
• Manage multi-state rental tax filings
  
  
• Maximize depreciation and cost segregation strategies
  
  
• Set up trusts or holding companies for legacy planning
  
  

We don’t just check boxes. As one of the most responsive Austin accounting firms, we think about where your business is going and how to get you there faster.

Why Real Estate Investors Choose Insogna CPA

If you’ve ever searched for a “tax advisor near me” and landed on someone who just files returns, congrats, you’ve done the bare minimum.

But if you want more: real strategy, tailored advice, proactive insights, that’s where we come in.

Here’s what sets us apart:

• Deep specialization in rental property tax planning
  
  
• Concierge-level service from a trusted CPA in Austin, Texas
  
  
• A full team of certified public accountants, taxation accountants, and real estate-savvy experts
  
  
• Integrated support for your LLCs, trusts, and multi-entity holdings
  
  

You don’t just get a tax return. You get a roadmap.

Before You File That LLC Paperwork, Let’s Talk

Still wondering whether an LLC makes sense for your situation?

Let’s figure it out together. Schedule a consultation with Insogna CPA, your go-to Austin, TX accountant, and we’ll review your properties, goals, and financial picture to help you make the smartest move for your portfolio.

Because you didn’t build all this just to hand it over to legal fees, tax filings, or avoidable mistakes. You built it for freedom, growth, and peace of mind.

Let’s make sure your structure reflects that...