Tax Advantages of Real Estate Investing: What Every Investor Should Know

Published: June 2025
By Military Mutual

Real estate isn’t just about rental income and long-term appreciation—it’s also one of the most tax-advantaged investment strategies available. Whether you’re a first-time landlord or a seasoned investor, knowing how to leverage real estate’s tax benefits can significantly boost your returns.

Here’s a breakdown of the key tax advantages of real estate investing and how to make the most of them in 2025.

📉 1. Depreciation Deductions

What it is:
Depreciation lets you deduct the cost of your rental property over a 27.5-year period (for residential), even if the property is actually increasing in value.

Why it matters:
It reduces your taxable income without impacting cash flow.

Example:

Own a $300,000 rental home (excluding land)? You could deduct over $10,000 per year in depreciation alone.

📊 One of the most powerful tools for sheltering rental income.

🧾 2. Deductible Expenses

You can deduct nearly all ordinary and necessary expenses related to operating your rental.

Common write-offs include:

• Mortgage interest

• Property taxes

• Repairs and maintenance

• Insurance premiums

• Property management fees

• Utilities (if you cover them)

• Travel related to property upkeep

💡 Keep detailed receipts and track expenses monthly to maximize deductions.

💸 3. 1031 Exchange (Tax-Deferred Exchange)

What it is:
A 1031 exchange allows you to sell one investment property and buy another of equal or greater value—without paying capital gains taxes immediately.

Why it’s powerful:
You can defer taxes indefinitely, growing your portfolio without IRS interference.

🔄 Used strategically, a 1031 can supercharge long-term real estate wealth.

📉 4. Capital Gains Tax Benefits

When you sell a property held for over one year, you pay long-term capital gains tax—typically lower than ordinary income tax rates.

Extra tip:

If you lived in the property for at least 2 of the last 5 years before selling, you may qualify for the Section 121 Exclusion:

• Exclude up to $250,000 in gains ($500,000 for married couples) on your primary residence.

📈 Timing your sale strategically can save thousands in taxes.

🏦 5. Pass-Through Deduction (Section 199A)

If you own your rental property through a pass-through entity like an LLC or as a sole proprietor, you may qualify for a 20% deduction on qualified business income under the Section 199A provision.

Example:

Earn $50,000 net rental income? You might be able to deduct $10,000—before calculating taxes.

✅ Consult with a tax advisor to ensure eligibility under IRS rules.

🧠 6. Tax Advantages for Short-Term Rentals (Airbnb, VRBO)

Short-term rental income can also qualify for deductions—sometimes even more if it’s considered active income (vs passive).

Potential benefits:

• Accelerated depreciation using cost segregation

• Business deductions for advertising, software, cleaning, and furnishings

• No self-employment tax in certain scenarios

⚠️ Rules are complex—especially regarding personal use—so talk to a CPA.

📚 Final Thoughts: Real Estate = Real Tax Benefits

From depreciation to 1031 exchanges, real estate investing offers some of the most generous tax benefits in the financial world. With the right strategies—and a savvy tax advisor—you can keep more of your profit and grow your wealth faster.