What’s Your Favorite Real Estate Tax Advantage?

Question

Tax season is here, and I’m curious what everyone’s favorite real estate tax advantage is.

Mine is using a 1031 exchange and then getting a step-up in basis later, especially when considering the generational wealth angle.

What’s your favorite tax move you use with your rentals or deals?

Joel Miller · Answer

I keep track of my hours spent on my rentals including a quick reference to what task was performed. If you have at least 250 hours (total hours, between all your properties in all your entities) for the year, you can take advantage of IRS Section 199A safe harbor rules and simply lop 20% off your net income from rentals from your taxable income. This has nothing to do with needing to be a "real estate professional." You don't need to be. Just attach a signed statement to your return that indicates that the safe harbor requirement has been met. The total can be met by the total hours between a married couple on properties they own together. The cool thing is that the hours don't have to be all your own! Why? Because, per the IRS, "the eligible services do not need to be performed only by you as the property owner and can include services performed by employees, agents, and independent contractors as well." In other words, you can add in the hours of anyone doing work on the properties when you're trying to reach 250 hours in total!

Austin Johnson · Answer

This is why I love BiggerPockets; thanks for this!