Real estate can create income, appreciation, and valuable tax planning opportunities, but purchasing a property does not automatically reduce every tax bill. Acqu Lofton and Mahmoud Faisal Elkhatib discuss how high earning professionals and rental property owners can evaluate multifamily buildings, depreciation, operating expenses, government supported rent, ownership structures, and long term investment goals. They also explain why the strongest strategy begins before the purchase and requires accurate records, realistic income projections, and coordination between tax, legal, lending, and real estate professionals.
Real estate is often presented as an automatic solution for someone facing a large income tax bill. The reality is more complicated. The property must fit the investor’s finances, income, participation, risk tolerance, and long term objectives.
A purchase may create rental income, depreciation deductions, operating expenses, and appreciation. The way those items affect the taxpayer depends on the ownership structure, property use, level of participation, financing, and applicable tax rules.
The objective is not to purchase any building before the year ends. It is to acquire an asset that makes sense before and after the tax return is filed.
The contract, title, financing, ownership entity, leases, and intended use of the property should support the investor's larger plan. EV Häs helps Chicagoland buyers and investors evaluate the legal structure before the transaction becomes difficult to change.
Mahmoud Faisal Elkhatib is a Chicagoland real estate and foreclosure attorney, investor, entrepreneur, and former real estate broker. His work includes real estate transactions, foreclosure matters, title disputes, building code cases, and complicated ownership issues.
Through The Bow Tie Edge, Mahmoud examines how legal planning, financing, taxes, property operations, and business objectives interact throughout a real estate investment.
Acqu Lofton is the owner of Luxury Tax Group and a licensed Illinois real estate broker with Davidson Realty. Her work connects tax preparation and real estate strategy for professionals, business owners, and investors.
Acqu focuses on helping clients understand income, expenses, depreciation, rental opportunities, documentation, and the financial characteristics of multifamily property before making an investment decision.
A rental property produces more than a monthly rent payment. The owner must account for mortgage obligations, taxes, insurance, repairs, utilities, vacancies, professional fees, capital improvements, and long term replacement costs.
Some eligible expenses may reduce taxable rental income. The building and certain improvements may also be depreciated according to applicable recovery periods and classifications.
Those deductions do not mean every loss can automatically offset salary or other active income. Passive activity and material participation rules can limit when and how rental losses are used.
The tax benefit should be calculated alongside the real operating cost, not used to hide a property that fails as an investment.
The conversation discusses the number of hours connected with real estate activity. Time matters, but the federal test involves more than reaching one annual threshold.
A taxpayer generally must perform more than 750 hours of services in qualifying real property trades or businesses in which the taxpayer materially participates. More than half of the personal services performed across all trades or businesses must also occur in those qualifying real estate activities.
Recordkeeping is essential. Calendars, property visits, management records, communications, contractor coordination, and other contemporaneous documentation may help establish what work was actually performed.
Owning several properties does not automatically create real estate professional status. The taxpayer must satisfy and document the applicable tests.
Acqu prefers multifamily property because several units can create multiple income sources inside one building. That income can help support the mortgage and reduce dependence on a single occupant.
Before recommending a property, she compares the sale price with similar buildings, reviews ordinary market rents, and researches potential payment standards for lawful housing assistance programs.
Government supported rent may offer a dependable payment source, but it does not eliminate screening, inspection, maintenance, compliance, vacancy, or property management responsibilities. Payment standards and program requirements can also differ by location and change over time.
The projected rent must be tested against the actual unit, neighborhood, program rules, condition, and operating expenses.
The tax code does not treat every component of a property the same way. Residential rental buildings are generally depreciated over a longer recovery period, while certain equipment, appliances, and qualifying improvements may use shorter periods.
Current federal rules may permit an additional first year deduction for certain qualified property acquired and placed in service after the applicable date. That treatment does not automatically apply to the land or the complete residential building.
The owner should maintain invoices, installation dates, settlement documents, improvement records, and a clear distinction between repairs and capital improvements.
The deduction depends on the classification and use of the asset, not simply on the fact that money was spent on a rental property.
Acqu encourages business owners and professionals to organize income and expenses throughout the year instead of delivering an unstructured collection of documents at filing time.
Advance planning creates time to evaluate entity structure, payroll, retirement contributions, estimated payments, property purchases, and other decisions before deadlines eliminate available options.
The same principle applies when selling investment property. The owner should discuss adjusted basis, depreciation recapture, capital gain, transaction expenses, and any potential exchange strategy before the sale is completed.
A tax return reports what already happened. Tax planning helps shape what happens before the return exists.
A tax objective can fail when the deed, contract, entity, financing, or closing structure does not support it. EV Häs helps investors coordinate the legal side of the transaction with the tax and financial professionals guiding the larger plan.
A strong investment team may include a tax professional, real estate broker, attorney, lender, insurance adviser, property manager, contractor, and other specialists.
Each professional sees a different part of the transaction. The broker evaluates the market and property. The lender analyzes financing. The tax professional reviews income and potential tax treatment. The attorney addresses ownership, contracts, title, and legal risk.
The team should not simply confirm what the investor already wants to hear. It should challenge unrealistic rent, unsupported deductions, weak reserves, unsuitable financing, and ownership structures that do not match the intended strategy.
Real estate can become a bridge between current income and long term wealth, but the bridge must be supported by a property that performs, records that support the reporting, and professionals who understand how their work connects.
No. Rental income and losses are generally subject to passive activity rules. Whether a loss can offset salary or other income depends on participation, income, filing status, available exceptions, and the taxpayer’s complete circumstances.
The taxpayer generally must perform more than 750 hours of services in qualifying real property trades or businesses in which the taxpayer materially participates. More than half of the taxpayer’s personal services across all trades or businesses must also be performed in those real estate activities.
Certain qualified property may be eligible for additional first year depreciation under current federal rules. Eligibility depends on the asset, acquisition date, placed in service date, business use, and other requirements. Land and the complete residential building do not automatically receive the same treatment.
Payment standards can provide useful information, but the owner should confirm the applicable program, location, unit size, inspection requirements, tenant eligibility, contract terms, and current payment amount before including it in the investment calculation.
The owner should maintain purchase and closing records, leases, rent receipts, invoices, bank statements, insurance documents, mileage records, contractor agreements, improvement records, depreciation schedules, and documentation of time spent managing or operating the property.
