7 Tax Deductions You’re Missing as a Real Estate Investor

If you’re a real estate investor, you’ve probably heard about the usual tax deductions—things like property taxes and mortgage interest.

But are you leaving money on the table by overlooking some less obvious deductions?

In a recent episode of the Tax Smart REI Podcast, Ryan Carriere, CPA, and Alex Savage discussed seven deductions that real estate investors frequently miss, plus one bonus tip.

Here’s what you need to know to ensure you’re maximizing your tax benefits.

1. Closing Costs and Loan Costs

Many investors mistakenly allocate only the purchase price between building and land. However, closing costs—often 3% to 6% of the purchase price—should be added to the depreciable basis. For a $750,000 purchase, this can be tens of thousands of dollars you’re missing out on.

• Loan Costs: These are typically amortized over the life of the loan. For example, $5,000 in loan costs on a 30-year mortgage translates to about $166 per year. It may not seem like much, but it adds up—especially if you own multiple properties.

Pro Tip: Keep detailed records and break out closing and loan costs properly on your depreciation schedule.

2. Insurance

Insurance is often escrowed with the mortgage, making it easy to overlook when compiling expenses. Whether it’s $1,000 or $3,000 a year—every premium counts toward your deductions.

• Short-Term Rentals: You’ll likely be covering the cost entirely.
• Long-Term Rentals: You may only pay during vacancies or when remodeling.

Insurance costs can be significant, and as premiums rise nationwide, it becomes even more crucial to track and deduct them.

3. Depreciation

This may seem obvious, but depreciation is often omitted by new investors or by tax preparers unfamiliar with rental property rules.

• Why It Matters: The IRS requires you to take depreciation, and if you skip it, you’re still on the hook for “allowed or allowable” depreciation when you sell.
• Straight-Line vs. Cost Segregation: Straight-line depreciation spreads out expenses over 27.5 or 39 years, depending on the property type. A cost segregation study front-loads some of that depreciation into the early years.

Either way, make sure you’re claiming it. A dollar saved today is more valuable than a dollar saved later, especially if you ever plan to sell.

4. De Minimis Safe Harbor

The de minimis safe harbor is $2,500, meaning any single item or invoice under this amount can generally be fully expensed rather than capitalized.

• Detailed Invoices: If you have a $10,000 invoice for several small items, ask your contractor to break it down. Each individual component under $2,500 is deductible immediately.
• Annual Election: This safe harbor must be elected on your tax return each year. Most tax software or CPAs can handle this with a simple “check the box.”

This can result in a major difference between getting a full deduction this year versus spreading it out over many years.

5. Vehicle Deduction

If you’re driving to properties for showings, repairs, or maintenance, track those miles. In 2025, the standard mileage rate goes up to 70 cents per mile.

• Standard Mileage vs. Actual Method: The standard mileage method (cents per mile) is simpler and works well for those who split driving between business and personal use. The actual method involves depreciating the vehicle and can yield bigger write-offs if you’re a full-time investor using your vehicle predominantly for the business.
• Tip: Use an app like MileIQ or a paper log. Small amounts can add up quickly over a year.

6. Paying Your Kids (Shifting Income)

If you have children old enough to do meaningful work in your rental business, consider paying them. Under the right entity structure, children under 18 can work without incurring FICA taxes.

• Reasonable Wage: Pay them a fair rate for tasks like cleaning, filing, or helping with unit turnovers.
• College-Age Children: Even if they’re over 18, you can still pay them for valid work. You’ll just have to account for payroll taxes or issue a 1099.

While the savings won’t be huge, every bit helps—especially if you plan to invest those earnings on your child’s behalf (e.g., in a Roth IRA).

7. Utilities

Don’t forget the utilities you pay during vacancies, rehabs, or for multi-family properties where landlords cover some services. Short-term rentals in particular often include owner-paid utilities year-round.

• Keep It Separate: Using a dedicated bank account or credit card for your rental can make tracking easier. It also reduces the chance you’ll pay a bill on a personal card and forget to record it.

Bonus: Professional Fees

Professional fees—such as tax preparation, legal advice, or strategic business consulting—can often be deducted if they’re directly related to your real estate activity.

• Tax Preparation: The portion of your CPA or tax software fees related to W-2 income isn’t deductible. However, the portion that covers your rentals or business schedules is deductible, so splitting out those costs is important.
• Legal Fees: Most legal costs tied to property operations (e.g., evictions, lease drafting) or business setup can be deducted. Personal legal fees (like estate planning for personal assets) typically are not.

Why All of This Matters

Some of these deductions may seem small on their own, but together they can add up to thousands of dollars in potential savings over time. Even if you can’t use these losses right away—say, you have passive activity losses—you’re building a “bank” of losses that can offset future gains or income when you need them.

In short: Good recordkeeping, detailed invoices, separate bank accounts, and the right elections on your tax return are the keys to capturing every deduction you’re entitled to. Whether you plan to use them now or in the future, these seven (plus one bonus) tax deductions are well worth your attention.

Final Thoughts

Real estate investing is all about maximizing return on investment, and strategic tax planning is a big part of that. By diligently tracking closing costs, insurance, depreciation, small repairs (under the de minimis safe harbor), vehicle expenses, wages to your kids, utilities, and professional fees, you’ll keep more of your hard-earned money.

Want personalized advice? Schedule a consultation with our team.

Transcript

[00:02] Ryan Carriere, CPA

Hey everyone, thanks for tuning into this week’s episode of the TaxSmart REI Podcast. Today, I am joined again by Alex Savage. Tom is currently out, so Alex is jumping in and helping me out.
What we’re going to talk about today is seven tax deductions you’re missing out on as a real estate investor. Commonly, people have heard of property taxes or other obvious items, but we want to highlight several that we see missed all the time in our advisory practice. They often don’t show up on profit-and-loss statements, and as a result, investors lose out on valuable tax benefits. We might even throw in a bonus one at the end.
Let’s jump right in.

[01:10] Ryan

1. Closing Costs and Loan Costs

I want to start by talking about closing costs and loan costs. After working with several hundred clients, I see depreciation schedules where the building and land are broken out by purchase price only—no closing costs whatsoever. For instance, if you buy a short-term rental property for $750,000, the tax preparer might allocate $750,000 between the building and land, but nothing else is capitalized.

That’s often a key indicator that we’re missing the closing costs, which could be 3–6% of the purchase price—sometimes tens of thousands of dollars. It might not be a huge deduction each year, but if you’ve got $10,000–$20,000 of extra depreciable basis, you definitely want to capture that.

Now, part of those closing costs also includes loan costs. These are the lender’s fees for underwriting and providing the mortgage. There’s a distinction because loan costs must be amortized over the life of the loan—commonly 30 years. For example, if you have $5,000 in loan costs over 30 years, that’s roughly $166 per year. It may not be a big number in any single year, but it can add up if you own multiple properties.
So again, closing costs and loan costs are two deductions we often see missed. Our firm has a specific spreadsheet for new clients that helps break all of this out—what’s currently deductible versus what needs to be capitalized and so on.

[03:41] Alex Savage

That’s a great place to start, Ryan. I see the same problem with closing costs and loan costs being missed all the time—especially when property taxes get lumped into a closing statement or escrow. That can easily be thousands of dollars in missed deductions if you’re not careful.

[04:38] Alex

2. Insurance

Moving on to number two, another item that seems obvious but still gets missed a lot is insurance. Sometimes it’s escrowed with your mortgage, so people forget to separate it out. I often open up a client’s P&L and look for “Insurance” right away. There should almost always be something there; it’s rare that investors aren’t carrying insurance on their rentals. It can be $1,000, $2,000, or $3,000—or much higher in certain states. Either way, it’s a must-capture expense.

[05:25] Ryan

Exactly. And as insurance premiums rise, it becomes even more important. Even a $2,500 premium can yield significant tax savings, depending on your tax bracket. Whether you’re able to use that deduction now under the short-term rental rules or real estate professional status, or it gets carried forward, you still want to capture it.

[07:09] Ryan

3. Depreciation

This might seem obvious to longtime listeners, since we talk a lot about cost segregation studies, but you’d be surprised how often depreciation itself gets missed. Some people use H&R Block or TurboTax and don’t realize they must enter depreciation. Or their tax preparer might not know how to apply depreciation to rentals.

Remember, the IRS requires you to claim depreciation. If you sell the property down the road, the IRS will treat you as if you had taken depreciation (the “allowed or allowable” concept), so you might as well claim it to maximize your current tax benefit.
Whether you’re using a straight-line method (27.5 years for residential, 39 for commercial) or leveraging a cost segregation study, you do not want to leave depreciation off your return.

[08:07] Alex

Exactly. Some people say they don’t want depreciation because of “depreciation recapture.” But as you mentioned, the IRS will recapture it whether you took it or not. So you might as well get the benefit now. A dollar of tax savings today is worth more than a dollar in the future.

[09:26] Alex

4. De Minimis Safe Harbor

We harp on this a lot with clients, but it’s crucial. The de minimis safe harbor is $2,500, meaning anything under $2,500 per item or invoice can generally be expensed rather than capitalized. The key is to get detailed invoices.
For example, if you get a $10,000 invoice from a contractor for various repairs or small improvements, have them itemize the costs. If certain items are less than $2,500 each, those may be fully deductible in the current year, rather than capitalized. This can lead to huge deductions—particularly for states that don’t conform to federal bonus depreciation. Also, make sure you or your tax preparer elect the de minimis safe harbor on your return each year.

[10:38] Ryan

Yes, it’s a simple check-the-box election in your tax software or with your CPA. Almost all real estate investors should include that election because repairs and supplies under $2,500 are very common.

[12:34] Alex

5. Vehicle Deduction

Let’s talk about vehicles. In 2025, the standard mileage rate is up to 70 cents per mile. That’s not insignificant, especially if you’re driving frequently to or between properties. We often see investors completely ignore mileage because they think it’s not worth tracking. In most cases, it absolutely is.

There are two methods: standard mileage (that 70 cents per mile) or actual expenses (depreciation, gas, maintenance, etc.). If real estate is your side business, you might lean toward the standard mileage rate. If you’re a full-time investor or flipper using a truck or SUV 80–100% for the business, the actual expense method (with bonus depreciation, Section 179, etc.) might make sense. Just remember, you need over 50% business use to keep those deductions.

[13:30] Ryan

Yep, exactly. Whatever method you choose, track those miles. Whether it’s a paper log or an app like MileIQ, make sure you’re capturing your trips. As you said, 70 cents a mile can add up fast over the course of a year.

[15:32] Ryan

6. Paying Your Kids (Shifting Income)

We sometimes call this the “shifting income to kids” strategy. If you have children who are old enough to perform meaningful work, and you’re a sole proprietor (or a partnership where both spouses are the only partners), you can pay them under age 18 without having to pay payroll taxes like FICA.

For example, maybe your 10-year-old helps you clean up a rental or assists with small tasks at a short-term rental. You have to pay them a reasonable wage—it can’t be $50 an hour for a 9-year-old—but done correctly, this is a legitimate strategy. You’re effectively shifting income from your higher bracket to your child, potentially tax-free up to the standard deduction threshold. The child can then use that earned income for a Roth IRA or other savings. It’s not going to save you $100,000 in taxes, but it all adds up.

[17:49] Alex

Exactly—these are things you’re already doing, you just formalize it. Yes, you need to open a separate bank account for them, issue a W-2 if necessary, and document the work. But it can create real tax savings while teaching your kids about money.
Even if your kids are over 18 and in college, you can still pay them for valid work; just realize that FICA taxes and withholding might apply then.

[20:11] Ryan

7. Utilities

This might sound like a no-brainer, but utilities frequently get missed. If your long-term tenant pays them, great. But what if you have a vacancy or do a remodel, and suddenly you’re footing the gas, electric, or water bill for a few months? Those are business expenses. With multi-family, often the landlord pays certain utilities all year. For short-term rentals, you’re paying all the utilities. So don’t forget to capture them on your profit and loss statement.

[21:29] Ryan

Many of us might pay a utility bill on a personal card in a rush and forget about it. This is where having a dedicated bank account or credit card for your rental properties helps ensure you don’t miss these small but important deductions.

[22:22] Ryan

Bonus: Professional Fees

Here’s our bonus tip: professional fees, like tax preparation and advisory. Legal fees related to your real estate business are also typically deductible.

A nuanced area is tax prep fees on your 1040. You can’t deduct the portion for just your W-2, but you can usually deduct the portion related to your rental business or other business schedules. You’d split the total fee between the personal portion and the business portion. That can be a little tricky, but definitely worth doing if it applies.

[23:42] Alex
Yes, and even if you’re generating passive losses this year, these deductions aren’t wasted. They become part of your passive loss carryforward, which you can use to offset income or gains in future years—like when you sell a property. So don’t skip claiming them just because you can’t use all the losses now.

[23:45] Ryan
Exactly. Over time, all of these seemingly small items—utilities, insurance, closing costs, vehicle mileage—can add up to thousands of dollars in potential tax savings. Whether you’re fully using them now (e.g., short-term rental strategy, real estate professional status) or banking them for future use, it’s crucial to document and claim them correctly.

[23:57] Ryan
All right, everyone, that wraps it up for this episode. Thanks again to Alex for joining me today. Tom and I will be back next week, but in the meantime, we hope these seven tips (plus a bonus) help you maximize your real estate tax savings. Have a great week!

Disclaimer: This podcast summary and transcript were partly generated and may contain some errors or miss key points from the audio recording.