12 Pieces of Advice for Real Estate Owners

Here are a few accounting & finance best practices for real estate operators

1. Run cost segregation studies on every property over $500k. Most owners miss accelerated depreciation by treating everything as 27.5-year residential property.

2. Consider filing as an S-Corporation if you receive significant active income such as asset management fees.

3. Master the 1031 exchange three-property rule. Identify exactly three replacement properties to maximize your options without disqualifying the exchange.

4. Track improvement vs repair expenses separately from day one. Improvements must be capitalized while repairs are immediately deductible.

5. Establish separate LLCs for each property. This creates cleaner depreciation schedules and better asset protection.

6. Document every business mile driven to properties. At $0.655 per mile, this adds up to thousands in deductions most owners forget.

7. Capitalize on the real estate professional status if you qualify. This unlocks unlimited passive loss deductions against ordinary income.

8. Use the de minimis safe harbor election for small improvements. Items under $2,500 can be expensed immediately rather than depreciated.

9. Be aware of state tax laws, which can differ from federal tax laws. For example, some states limit the amount of losses you can carryforward to future tax years. In these states, strategic timing of imrpovements can optimize loss utilization.

10. Keep detailed records of all professional development. Real estate education, conferences, and certifications are fully deductible.

11. Consider installment sale treatment for property dispositions. This spreads gain recognition over multiple years for better tax management.

12. Plan on keeping cash reserves equal to 1-6 months of expenses for each property. You'll save significant time and stress be not scrambling to find cash for basic repairs.