Is it worth tax planning before acquiring rentals?

Seattle, Washington
Personal Finance
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Is it worth tax planning before acquiring rentals?

Cathy RiesPro Member
Seattle, WA · Member since 2022 · 3 posts · 8 votes

Is it worth talking to someone to start the tax planning convos if this is my current situation?

1. I do not have rental property yet but intend to buy in 2025. Partner and I are planning to finance it together. 

2. My partner and I are not married but we own a primary residence together. We split mortgage and are both on the loan and title. 

As of now, I can see tax planning being beneficial to handle 2 people filing as single because we have to figure out how deductions from the mortgage will work. It'll only be more complicated when we acquire additional property. 

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Daniel Murphy
Financial Advisor · Saint Paul, MN · Member since 2016 · 190 posts · 143 votes
1y

I'm a financial planner by profession so you'd think the default answer is, "heck yeah, always hire a planner!"  
But in reality, for younger people with moderate income, I actually see less benefit to financial planning.  
The one aspect I'd say where planning can really provide benefit however is with tax planning.  

If you're pretty smart with this stuff, I think can definitely make sense for you two to talk with a tax planner. The intricacies tax planning with a rental are worth hiring a professional, even if you just do it once for an overview.  Given that you're not married, that adds some additional complexity.  
All this is to say, I believe it would be money well spent for sure... 

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  • Ben Trageser
    Accountant · Montclair, NJ · Member since 2020 · 218 posts · 104 votes
    1y

    There are a lot of different things to consider here. With your primary residence, things can be pretty straight forward in terms of splitting mortgage interest, real estate taxes etc. on your returns.

    If you go into a rental property, there are a lot of considerations to think about. How will the ownership of the property be? Expenses, depreciation, income splits. If you don't have intentions of getting married, I would make sure there is an ironclad partnership agreement on the property itself. What happens if you split in the future? Will you need to sell the property? Is there a buy out plan?

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  • Daniel Murphy
    Financial Advisor · Saint Paul, MN · Member since 2016 · 190 posts · 143 votes
    1y

    I'm a financial planner by profession so you'd think the default answer is, "heck yeah, always hire a planner!"  
    But in reality, for younger people with moderate income, I actually see less benefit to financial planning.  
    The one aspect I'd say where planning can really provide benefit however is with tax planning.  

    If you're pretty smart with this stuff, I think can definitely make sense for you two to talk with a tax planner. The intricacies tax planning with a rental are worth hiring a professional, even if you just do it once for an overview.  Given that you're not married, that adds some additional complexity.  
    All this is to say, I believe it would be money well spent for sure... 

    3Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
    1y

    @Cathy Ries Yes, tax planning before acquiring rental properties is highly beneficial, especially given your situation. Since you and your partner are unmarried and own a primary residence together, tax treatment of deductions (e.g., mortgage interest and property taxes) requires careful allocation. When purchasing a rental in 2025, deciding on ownership structure (e.g., joint ownership vs. LLC) will impact liability, tax deductions, and reporting requirements.

    Rental income is taxed as passive income, and losses—such as depreciation and property expenses—can offset rental income but may be limited if your income exceeds certain thresholds. If one of you actively manages the property, pursuing Real Estate Professional Status (REPS) could unlock full deductions against W-2 income. Additionally, cost segregation and bonus depreciation can accelerate tax benefits.

    Because filing as single taxpayers limits certain deductions, planning in advance ensures you maximize benefits while avoiding complications. Consulting a tax professional now can help structure ownership and financing efficiently, ensuring you take full advantage of deductions, depreciation, and potential tax-saving strategies like 1031 exchanges in the future.

    This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    1y

    With good software available so readily I'd say nah, but you have a partnership with non-family.  

    That complicates enough I'd consult with an entity/asset protection pro.

    I don't hold residential assets in LLCs unless partners got involved. Then I'd probably have an LLC. Not really a tax question as the membership % decides who does, gets and deducts what.

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 4k+ votes
    1y

    One thing to note when getting conventional mortgages and spouses.

    There is a 10 limit per person for conventional financing.

    You can either do 10 conventional in each person's name which would be 20 mortgages for 2 people or if you do the mortgages jointly, will only allow 10 in total.

    My thoughts are not to own joint assets until you are both married. 
    For the time being, might as well get a mortgage in one person's name.

    Best of luck.

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  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    1y

    I would generally say no if you don't have a property unless you're looking for peace of mind knowing that you've set your financial life properly. 

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  • Paul Novak
    Rental Property Investor · WI · Member since 2023 · 192 posts · 144 votes
    1y

    I do think that meeting with a tax professional could be helpful. Both from how you want to structure your rental property business and how to handle things from a tax perspective. I say this from experience. Everything worked out okay but we received advice from our CPA after forming our LLC that we should have structured things differently but by the time we met with him it was already done. This could have been prevented if we would have met with him first.

    1Reply
  • Brian Dela CruzBusiness Member
    Accountant · Pensacola, FL · Member since 2024 · 13 posts · 3 votes
    1y

    Being unmarried with your business partner presents complexities and problems. 

    How will you split income, deductions, and the mortgage? 

    Beyond that, will you operate as a partnership?

    If you two can no longer get a long and want to separate, how will you handle that separation peaceably?

    If one partner wants to exit or passes away, what happens to the property or properties? 

    These are the kinds of questions business and tax planning would help you to explore, think about, and answer. It is supercritical to do this ahead of time to have a plan A, B, and C. Your options are greater ahead of the transaction as opposed to when the transaction has already been entered into.

    Best of luck to you!

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  • Sean SmithBusiness Member
    Real Estate Agent · Seattle, WA · Member since 2020 · 169 posts · 111 votes
    1y

    @Cathy Ries I believe it's worth talking with a tax expert to position yourself strategically as a well-qualified loan applicant, while also reducing your taxable income as much as possible. This doesn't have to be a long, arduous process - it can likely be done at at the same tie as you're analyzing deals and learning the market.

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