Key takeaways
- Depreciation is the single largest landlord tax benefit.
- Cost segregation accelerates 20–35% of basis.
- REPS unlocks passive loss deductibility against W-2 income.
- Repairs vs improvements distinction matters for timing.
- 1031 exchange defers gain indefinitely.
Core concepts
Depreciation
27.5-year straight-line on residential improvements; land is non-depreciable.
Cost segregation
Reclassify 5/7/15-year components for accelerated depreciation.
REPS
Real Estate Professional Status — 750 hours and material participation unlocks W-2 offset.
1031 exchange
Defer capital gains by reinvesting proceeds into like-kind property within 180 days.
Step-by-step framework
- 1Track basis, improvements, and depreciation per property.
- 2Engage cost-seg study on any asset > $500k.
- 3Document REPS hours contemporaneously.
- 4Plan 1031 exchanges 90 days before close.
- 5Annual tax planning meeting before December.
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Common mistakes to avoid
- Treating capex as repairs.
- Forgetting depreciation recapture at sale.
- Failing the 180-day 1031 window.
- REPS claims without contemporaneous logs.
Frequently asked questions
Is cost seg worth it?
On assets > $500k, almost always. Below $300k, often not.
Can I do my own taxes?
Through property 2; past that, hire a real estate CPA.
Does REPS require quitting W-2?
Usually yes — 750 hours is hard to hit otherwise.
What if 1031 fails?
Tax due on entire gain plus recapture — typically 25–35%.
Action checklist
- ☐Basis tracked per property.
- ☐Cost-seg studied on each > $500k.
- ☐REPS log maintained if applicable.
- ☐Real estate CPA engaged.
- ☐Annual planning meeting before Dec 31.
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