Tax-Saving Strategies for Real Estate Investors: How to Pay Less & Keep More This Year


When folks are asked if taxes are too high, they usually say yes, way too high. Of course, most of us want to pay less in taxes, but let’s look at it from a historical perspective. As I’m writing this, the federal tax rate in the highest bracket is 39.6%. Starting in 1939, the top rate was 75%. It rose to 91% during WWII all the way until 1965, when it decreased to 70%. The 91% tax rate was on income of $200K and above. (For the full chart of the tax rates through history, click here.)

For most of us, taxes are our biggest expense. So, if we assume that the tax rate itself isn’t too high, why are so many people paying more and keeping less?

Related: 3 Tell-Tale Signs You’re NOT Running a Tax-Efficient Business

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Maybe Your Deductions Are Too Low

Although I’m not an accountant, I do know that the majority of people aren’t even close to taking all the legal deductions they could. Saving on taxes and investing that money is probably one of the most underutilized ways for people to really build wealth. The reason I know this is because much of my own wealth was built this way.


Using the Tax Laws to Build Wealth

One strategy is to have the right entity structures and to organize your business plan, especially before the December 31st tax deadline of the current year. It’s really best to know the tax laws and strategies that relate to you the most. For example, utilizing an S-Corporation may make more sense to flip houses in so you can run expenses, like medical, through — and it’s not subject to social security tax.

Owning a business can create many tax saving opportunities, as does owning real estate. Deductions include taxes, mortgage interest, repairs, and the best one, of course, depreciation (phantom income). There’s also many other tax-deductible expenses, like company vehicles, meals, travel and entertainment, and office supplies.

Another strategy is to utilize the 60-day IRA rollover option to fund real estate deals. This gives you premature access to retirement capital without tax or penalty.

Don’t Fear the IRS

I believe the number one reason people pay way too much in taxes is that they fear the IRS. You really just need to be organized and keep good records. Keep in mind also that many write-offs can be accelerated.

You can also try to convert nondeductible expenses into deductible ones. For example, years ago I use to pay for my wife’s non-deductible auto loan with our deductible HELOC (Home Equity Line of Credit).

Related: Investors: Start Planning Now to Make Sure You Don’t Miss 2016 Real Estate Tax Savings!

Another strategy is to try to increase deductions before year-end or try to postpone or defer income. I’ve even used income splitting strategies with family. It also may make sense to utilize retirement plans, 1031 exchanges, and even some family limited partnerships. Sometimes, you could even reclassify income. You can also save on payroll taxes and expenses by providing fringe benefit plans in place of increased salary or by using independent contractors, consultants, or even virtual assistants.


Increase Your Deductions

It’s also possible to increase your depreciation deductions on rental properties by utilizing cost segregation, a method by which the parts or sections of a property are individually depreciated at different, more accelerated rates. This could allow you to take more deductions sooner and use the money to re-invest.

Another way to increase your deductions is to hire a family member who’s in a lower tax bracket, as you may be able to deduct more business expenses. Some real estate investors also acquire a real estate salesperson’s license in order to create a business with additional business deductions.

As you can see, there are way too many deductions and strategies to mention in one article. But what holds most people back from saving and investing the money they would’ve spent in taxes is that they don’t take the time to learn about the tax code or stay organized.

So, as a real estate investor, what are some of your favorite tax saving strategies?

Let me know with a comment!

About Author

Dave Van Horn

Dave Van Horn is President at PPR The Note Co. - an operating entity that manages several funds that buy/sell/hold residential mortgages, both performing and delinquent. Dave has been in the Real Estate business for 25 years, starting out as a Realtor and contractor and moving onto everything from fix and flips to Raising Private Money.


    • You can become a real estate assistant too.

      I’m dealing with this problem right now. It’s a double edge sword. I got a lot back on my taxes, but when I go get another loan to increase my portfolio and my debt to income ratio based on my 2015 taxes puts me above the limit.

      • Dave Van Horn

        Hi Justin,

        It’s true, you can’t have it both ways. That’s why it pays to get creative when acquiring more assets, like getting a loan in a spouse or a high income earning partner’s name (especially one with good credit).


        • Justin Mayet on

          Thanks for the reply. If I were to do that though then what would I do after acquisition? Deed it into my name or an llc? Then once I did that and let’s say defaulted several years later (worst case scenario) would they be able to go after that person who helped me out?


      • Dave Van Horn

        Hi Justin,

        Good question. Ideally, you would set up an LLC with that person and the person who gets the mortgage in their name is the majority owner.

        Now in either event, if the two of you were to default on the loan, the bank would take the property back and it would affect your partner’s credit (not yours). Usually in partnerships like these, the exchange is that the risk of the default is on the partner whereas you as the other investor would find the deal.

        Hope this answers your question.


        • Justin Mayet on

          Thanks for the info, but that makes it unattainable for me. Who would agree to put there credit on the line for me? No one I know or can conceive of would agree to this arrangement. Not that I can’t be trusted, but they like me think of worst case scenario before diving into something and that puts too much risk on them.


        • Dave Van Horn


          These type of transactions happens much more than you think but of course this doesn’t happen overnight for the average investor. A quality network, track record, and quality deals go a long way.

          It’s a mutually beneficial scenario. Let me give you an example. Say an investor with little money comes to me with a great idea – we form an LLC together where he/she finds low end properties, acquires them using hard money, renovates them, and manages the newly refurbished rentals. In exchange for them doing all the work, I provide the exit financing by obtaining the refinance loan which is easy for me to get since I have high income and good credit.

          So in that scenario, as the money partner I would get 51% of the investment or portfolio of investments for doing next to nothing. Just a flick of the pen. Now like you mentioned, I carry the risk in the deal but how risky is a newly renovated property with 70% LTV that cashflows? Not to mention, as the money partner I do my own due diligence as well on the investor and the deals themselves.


    • Dave Van Horn

      Hi Brian,

      Thanks for reading!

      As a Real Estate investor, having a real estate license allows you to write off things such as education, membership fees, travel, meals, office expenses, entertainment, gifts, vehicle expenses (car washes, tolls, parking), marketing (events, parties) etc.

      Plus with a license you’re not capped at $25,000 for passive losses like most individuals.


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