Real estate offers more tax advantages than virtually any other investment. Sophisticated investors use these deductions to significantly reduce tax liability, sometimes eliminating it entirely.
Depreciation: The King of Deductions
Residential properties depreciate over 27.5 years, commercial over 39 years. On a $275,000 rental property (excluding land), depreciation generates $10,000 annual deduction without cash expenditure. Cost segregation studies accelerate depreciation by identifying components with shorter lives (appliances, carpeting, fixtures).
Operating Expenses
Fully deductible expenses include: mortgage interest, property taxes, insurance, repairs and maintenance, utilities, property management fees, advertising, legal and professional services, HOA fees, and travel to properties (mileage at $0.67/mile for 2024).
Real Estate Professional Status
Spending 750+ hours annually in real estate activities allows deducting rental losses against other income without limits. This powerful benefit requires careful documentation but can save $20,000-$50,000+ annually for high-income individuals.
Capital Improvements vs Repairs
Repairs (fixing existing items) deduct immediately. Improvements (adding value/extending life) must depreciate. New roof, HVAC system, addition = improvements. Fixing leaks, painting, minor repairs = deductible expenses. Strategic timing of work can optimize tax benefits.