Tax library
Realty Desk source checked 2026-11-02. Consult official sources for subsequent changes.
Rental income and expenses
Rent you receive is income: monthly rent, advance rent (in the year you receive it, whatever period it covers), fees a tenant pays you (late fees, pet fees), and any part of a security deposit you keep. A deposit you plan to return isn't income when you receive it. You deduct the ordinary costs of renting: mortgage interest, property taxes, insurance, repairs, management fees, utilities you pay, advertising, travel to the property, legal and professional fees. Improvements aren't deducted all at once: they're depreciated. Each property is reported separately on Schedule E (Form 1040), Part I. - Keep records by property: receipts, the lease, the rent roll, and the closing statement from the purchase. - In this app each property has its own Schedule E, basis, improvements register and depreciation, and the year-end packet prints a page per property.
Personal use and vacation homes
If you or your family use a rental home yourselves, the personal-use rules decide what you can deduct. - You use it as a home if your personal days are more than the greater of 14 days or 10% of the days it's rented at a fair price. Then rental expenses are limited to rental income: no rental loss. - Rented fewer than 15 days in the year: don't report the rent and don't deduct rental expenses (mortgage interest and property taxes can still go on Schedule A). - With any personal use, expenses are divided between rental and personal days. Days rented to family below a fair price count as personal days. Enter each property's days on its Overview page; the app shows the test.
Rental losses: the $25,000 allowance
Rentals are generally passive: a loss offsets only passive income, and the rest carries forward. If you actively participate (you own at least 10% and make the management decisions: approving tenants, setting rent, approving repairs), you can deduct up to $25,000 of rental real estate losses against other income. - The allowance shrinks by 50% of modified adjusted gross income over $100,000 and is gone at $150,000. - Married filing separately: up to $12,500 if you lived apart all year (phase-out $50,000 to $75,000); none if you lived together at any time. - Real estate professionals who materially participate can treat rental losses as non-passive. Losses you can't use carry forward and are released when you sell the property in a taxable sale.
Real estate professional status
Real estate professional status can let rental losses offset other income. You qualify for a year if both are true: - More than half of the personal services you performed in all trades or businesses were in real property trades or businesses in which you materially participate, and - You performed more than 750 hours of services in those real property trades or businesses. Real property trades or businesses: develop or redevelop, construct or reconstruct, acquire, convert, rent or lease, operate or manage, or broker real property. A licensed agent who brokers real estate is in one. - Work as an employee doesn't count unless you're a 5% owner of the employer. - Married filing jointly: one spouse must meet both tests alone. You can't add your hours together for this test. - Qualifying isn't enough by itself: you must also materially participate in each rental, unless you elect to treat all your rentals as one activity. Keep a time log as you go: date, hours, what you did and for which property. The Hours log in this app keeps that record and totals it against both tests.
Material participation
You materially participate in an activity for the year if you meet any one of these tests: - 1. You worked more than 500 hours in it. - 2. Your work was substantially all of the work done in it by anyone, including non-owners. - 3. You worked more than 100 hours and at least as much as anyone else, including non-owners. - 4. It's a significant participation activity (more than 100 hours) and all of yours together total more than 500 hours. - 5. You materially participated in it in any 5 of the 10 years before. - 6. It's a personal service activity and you materially participated in any 3 years before. - 7. Based on all the facts, you took part regularly, continuously and substantially (more than 100 hours; other limits apply). Your spouse's work counts toward your participation, even on separate returns. Work as an investor (reviewing statements, monitoring without managing) generally doesn't count.
Short-term rentals
A short-term rental can be treated differently from an ordinary rental. - If the average stay is 7 days or less, it isn't a rental activity under the passive loss rules. The loss is passive unless you materially participate (the $25,000 allowance doesn't apply); if you materially participate, the loss can offset other income. - The same is true if the average stay is 30 days or less and you provide significant personal services, like a hotel. - Average stay = total days rented ÷ number of separate stays. In Florida, stays of 6 months or less are transient rentals: collect and remit 6% state sales tax plus county surtax and the tourist development tax, and a whole-unit vacation rental generally needs a DBPR license (Florida rental rules › Short-term rentals). Schedule E type 3 is Vacation/Short-Term Rental. Whether it belongs on Schedule E or Schedule C depends on the services you provide: ask your preparer.
Depreciation basics
You recover the cost of a rental building through depreciation, not in the year you buy it. - Residential rental buildings: 27.5 years, straight line, mid-month convention. A building placed in service in January gets 3.485% the first year, then 3.636% a year. - Land is never depreciated. Divide your cost between land and building by fair market value; if you aren't sure, the property appraiser's assessed values are an accepted way to divide it. - Basis starts with the price plus certain closing costs (title insurance, recording fees, transfer taxes, surveys, legal fees), not loan costs. - Improvements are depreciated separately: building improvements such as a roof or HVAC system over 27.5 years; appliances, carpet and furniture in the rental over 5 years; land improvements such as fences, driveways and shrubbery over 15 years. - Depreciation starts when the property is ready and available to rent, even before the first tenant. - Depreciation lowers your basis, and depreciation you were allowed is taxed when you sell (up to 25%) whether or not you claimed it. Claim it every year. The app estimates with the IRS tables, without bonus depreciation or section 179. Your preparer sets the final figures on Form 4562.
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Repairs vs. improvements
A repair keeps the property in ordinary working condition and is deducted the year you pay it. An improvement is capitalized and depreciated. It's an improvement if it: - betters the property (fixes a defect that existed when you bought it, enlarges it, adds capacity or quality), - restores it (replaces a major component or substantial structural part, or rebuilds it), or - adapts it to a new or different use. Safe harbors that let you deduct instead: - De minimis: items costing up to $2,500 per invoice or item ($5,000 with an applicable financial statement), with the election statement attached to your return each year. - Routine maintenance: recurring work you expect to do more than once in 10 years to keep a building in ordinarily efficient operating condition. - Small taxpayer (building unadjusted basis $1,000,000 or less, average gross receipts $10 million or less): the year's repairs, maintenance and improvements on that building up to the lesser of 2% of its unadjusted basis or $10,000. Elected each year. Use the Repair or improvement? helper for a quick read, and keep the invoice either way.
Cost segregation and bonus depreciation
A cost segregation study, prepared by an engineer or specialist, separates parts of a building that can be depreciated faster than 27.5 years (some 5-, 7- and 15-year property such as certain fixtures, finishes and site work). With bonus depreciation it can move a large deduction into the first year. The One Big Beautiful Bill Act made 100% bonus depreciation permanent for qualified property acquired after January 19, 2025. It isn't right for everyone: the study costs money, the benefit depends on your tax situation and the passive loss rules, and faster depreciation now means more recapture when you sell. The IRS publishes an Audit Techniques Guide on cost segregation. Ask your preparer before you order a study.
Selling your home: the exclusion
When you sell your main home, you may exclude up to $250,000 of gain ($500,000 on a joint return) if: - you owned it at least 2 of the 5 years before the sale, - you lived in it as your main home at least 2 of those 5 years, and - you didn't exclude gain on another home in the 2 years before. On a joint return, one spouse must meet the ownership test and both the use test for the larger exclusion. For agents and landlords: - A rental isn't your main home. If you rented a home before living in it, part of the gain may not qualify, and depreciation after May 6, 1997 is taxed even when the rest is excluded. - A partial exclusion may apply if you sold early because of work, health or unforeseen circumstances. Keep the closing statements from the purchase and the sale, and records of improvements.
1031 exchanges
A like-kind exchange (section 1031) defers the gain when you trade investment or business real estate for other real estate. Since 2018 it applies only to real property. - Identify the replacement property in writing within 45 days after you transfer the property you're selling. - Receive the replacement property within 180 days, or by the due date (with extensions) of that year's return if earlier. - Your main home and property held mainly for resale (flips) don't qualify. - Cash or debt relief you receive (boot) is taxed. - A qualified intermediary usually holds the sale money; if it reaches you, the exchange can fail. It's reported on Form 8824. Plan it with your preparer and the intermediary before you close the sale.
Agents: self-employment basics
Licensed real estate agents are treated as self-employed for federal taxes when substantially all their pay is tied to sales (not hours) and they work under a written contract saying they won't be treated as employees. - Your brokerage reports commissions on Form 1099-NEC. Some report the gross commission, some the net after splits and fees: compare it with your closings on the Agent Overview. - You report the business on Schedule C and pay self-employment tax of 15.3% (12.4% social security up to the yearly wage base, plus 2.9% Medicare) on net earnings, plus income tax. - The qualified business income deduction can be up to 20% of qualified business income, within limits. - Nothing is withheld from commissions, so you pay estimated tax each quarter. The Quarterly app plans the payments and reminds you.
Agents: deductible expenses
Common costs for agents and where they go on Schedule C (2025): - Advertising, marketing, signs, listing photos, staging: line 8. - Car: standard mileage rate or actual costs × business use, plus business parking and tolls: line 9. Driving from home to your regular office is commuting. - Broker splits, referral fees and transaction fees you pay: line 10. - E&O and business insurance: line 15. License fees: line 23. - MLS and board dues, continuing education, lockbox fees: other expenses, line 27b. - Business gifts: no more than $25 per person per year; engraving, packing and shipping aren't counted toward the limit. - Meals with clients: 50%. Entertainment (golf, games, shows) isn't deductible. - Phone and internet: the business share only. Car method: if you use actual expenses in the first year for a car you own, you can't switch to the standard rate later; if you start with the standard rate, you can choose either method later. Keep a written log: date, miles, place, purpose. Home office: a space used regularly and only for business. Simplified method: $5 per square foot up to 300 square feet ($1500 a year). Regular method: Form 8829 with actual home costs. IRS Publication 535 was discontinued after 2022; Publication 334 is the general small business guide now.
Is an S corporation worth it?
Many agents ask whether an S corporation would save tax. The idea: the corporation pays you a salary, and profit above that salary isn't subject to self-employment tax. But: - The corporation must pay you reasonable compensation for your work before it makes other distributions to you. What's reasonable depends on your facts. - It adds work and cost: payroll and payroll tax returns, a corporate return (Form 1120-S), bookkeeping, and the Sunbiz annual report. - Health insurance for a more-than-2% shareholder runs through payroll (Form W-2) to be deducted. - Commissions must be paid to the corporation, which your brokerage and Florida's license rules must allow. - A home office is reimbursed by the corporation under an accountable plan, not rented to you. Whether it pays off depends on your profit, your other income and the costs. This app doesn't calculate it. Ask your preparer to run your numbers. Questions? Spargur Tax & Accounting · 239-488-4555 · spargurtax.com
Form 1099-NEC for contractors
If you pay a person, partnership or LLC (not taxed as a corporation) for services in your business, you may need to file Form 1099-NEC and give them a copy by January 31. - Payments made in 2025: $600 or more for the year. Payments made in 2026: $2000 or more (it may be adjusted for inflation starting in 2027). - Payments to corporations generally aren't reported, except fees paid to attorneys. - Payments by credit card, debit card or payment app are reported by the processor on Form 1099-K, not by you. - Get a W-9 before you pay, and keep it in your files: this app never stores taxpayer ID numbers. Landlords: Schedule E asks whether you made payments that required a Form 1099. Whether your rental must file depends on the facts: ask your preparer.
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Florida homestead and Save Our Homes
If you own your Florida home and make it your permanent residence by January 1, file for the homestead exemption with your county property appraiser by March 1. - The first $25,000 of assessed value is exempt from all property taxes. An additional exemption of up to $25,000 (indexed for inflation since 2024) applies to assessed value over $50,000, for non-school taxes. - Save Our Homes: after the first year, your homestead's assessed value can't rise more than 3% a year or the change in the Consumer Price Index, whichever is less. - Portability: moving to a new Florida homestead, you can bring up to $500,000 of that benefit with you (within 3 years). - Non-homestead property (rentals, second homes): assessment increases are capped at 10% a year, for non-school taxes. - Renting out your homestead can cost you the exemption. Check with your property appraiser first. On the November 3, 2026 ballot, Amendment 3 would raise the non-school homestead exemption to $150,000 in 2027 and $250,000 in 2028, and lower the non-homestead cap to 5%. It needs 60% to pass. Check the result before relying on these figures. Lee County: leepa.org.
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