Investing in Long-Term Rental properties is an excellent way to generate steady passive income, but without the right Tax strategy, landlords can lose thousands of dollars in unnecessary taxes. At TaxHelp.RealEstate, we specialize in Tax planning, bookkeeping, and compliance services designed specifically for Long-Term Rental property owners.
Why Do Landlords Need a Long-Term Rental CPA?
- Long-term rentals are taxed as passive income, meaning different rules apply compared to Short-Term rentals or active businesses.
- The right tax strategy can help landlords reduce their tax liability while staying compliant with IRS regulations.
- Without expert guidance, many rental property owners miss out on key deductions or misclassify expenses, leading to IRS audits or overpaid taxes.
Understanding Long-Term Rental Taxes
Long-term rental properties are taxed under passive income rules, which means:
- No self-employment tax: Unlike Short-Term Rentals, landlords do not have to pay 15.3% self-employment tax on rental income.
- Depreciation benefits: Landlords can depreciate the property over 27.5 years, reducing taxable income.
- State & local taxes apply: Depending on the location, landlords may owe property taxes, state income tax, and municipal rental taxes.
- Passive activity loss limits: If you do not meet IRS Real Estate Professional Status (REPS) requirements, rental losses may be limited to $25,000 per year.
Top Tax Strategies for Long-Term Rental Owners
1. Maximize Depreciation Benefits
The IRS allows landlords to depreciate residential properties over 27.5 years, providing annual tax deductions for property wear and tear.
- Cost Segregation: Accelerates depreciation on certain property components (e.g., appliances, roofing, HVAC).
- Bonus Depreciation & Section 179: Eligible improvements can be fully expensed in the first year instead of spread over decades.
- 1031 Exchange: Allows investors to defer capital gains taxes when selling and reinvesting in another Rental property.
Example: If a Rental property is valued at $300,000, standard depreciation allows a $10,909 tax deduction per year.
2. Deduct Every Eligible Expense
Long-Term Rental owners can significantly reduce Taxable income by deducting ordinary and necessary expenses, including:
- Mortgage interest
- Property management fees
- Repairs & maintenance
- HOA & condo fees
- Property insurance
- Legal & accounting fees
- Travel expenses for property management
- Utilities (if paid by the owner)
Important: Repairs are fully deductible in the year incurred, while property improvements must be depreciated over time.
3. Choose the Right Business Structure
The correct legal entity can impact both tax liability and asset protection.
- Sole Proprietorship: Simple, but offers no legal protection.
- LLC (Limited Liability Company): Protects personal assets but does not lower taxes unless properly structured.
- S-Corp or C-Corp: Less common for rental properties but may be useful for large portfolios or property management businesses.
💡 Need guidance? Our CPAs help Landlords choose the most tax-efficient entity for their investment goals.
4. Qualify for Real Estate Professional Status (REPS)
- If you spend 750+ hours per year actively managing Rental properties, you may qualify as a Real Estate Professional for tax purposes.
- This allows you to deduct unlimited Rental losses against other income, such as W-2 earnings or business profits.
- Landlords who do not qualify for REPS are subject to passive activity loss limitations.
5. Understand Capital Gains & 1031 Exchanges
- Selling a rental property usually triggers capital gains tax, but a 1031 exchange allows landlords to defer taxes by reinvesting proceeds into another property.
- Properties held for over one year qualify for lower long-term capital gains tax rates (0%, 15%, or 20%).
Example: A landlord sells a property with a $100,000 gain. Using a 1031 exchange, they pay $0 in capital gains tax and roll the full amount into a new investment.
Common Tax Mistakes Landlords Should Avoid
- Not tracking expenses properly – Many landlords miss deductions because of poor bookkeeping.
- Failing to depreciate rental property – Depreciation is one of the biggest tax breaks for landlords.
- Misclassifying repairs vs. improvements – Repairs are deductible immediately, but improvements must be depreciated.
- Ignoring state/local rental tax laws – Different states and cities have varying tax regulations.
Long-Term Rental CPA FAQs
Rental income is classified as passive income, meaning it is not subject to self-employment tax but is taxed at ordinary income tax rates.
No. The IRS requires property improvements (e.g., new roof, kitchen remodel) to be depreciated over time rather than deducted in full in the year they occur.
Depreciation allows landlords to offset rental income with non-cash deductions, reducing taxable income without affecting cash flow.
An LLC can protect personal assets, but it does not automatically lower taxes. The best structure depends on portfolio size, income level, and tax strategy.
Yes, if the travel is directly related to managing the rental property, including mileage, flights, and hotel stays.
Using a 1031 exchange, landlords can reinvest proceeds tax-free into another rental property, deferring capital gains taxes.
Why Choose TaxHelp.RealEstate?
- Specialized CPA firm for landlords & investors
- Comprehensive tax planning to reduce liability
- Accurate bookkeeping & IRS compliance support
- Multi-state tax expertise for rental property owners
📞 Call us at: +1-919-749-3971
📧 Email: john@taxhelp.realestate
🔗 Outbound Links for Authority
- IRS Guide on Rental Income & Deductions: IRS.gov
- 1031 Exchange Rules & Benefits: Investopedia
- Real Estate Professional Status (REPS): Journal of Accountancy