CPA for Houston Real Estate Investors

The real estate professional election (IRC 469(c)(7)) allows qualifying individuals to treat rental losses as non-passive — meaning they can offset other income like W-2 wages. To qualify, you must spend more than 750 hours/year in real estate activities AND more than 50% of your total work time. We analyze your situation to determine if you qualify.

A 1031 exchange defers capital gains tax when you sell an investment property and reinvest the proceeds into a like-kind property within IRS deadlines (45 days to identify, 180 days to close). We handle the tax reporting — but you must use a qualified intermediary (QI) to hold the funds during the exchange.

Generally, rental losses are passive and can only offset passive income unless you qualify as a real estate professional. However, there is a $25,000 exception for active participants with modified AGI under $100,000 (phases out to $150,000). We analyze your specific situation.

Yes. We prepare your complete tax picture — Schedule E for each property, your personal Form 1040, and any business entity returns (LLC, partnership, or S-corp) if applicable.

Rental income and expenses are generally reported on Schedule E. Rent received is taxable when received, and ordinary and necessary expenses — mortgage interest, property tax, insurance, repairs, management, and depreciation — are deducted against it. Improvements are capitalized and depreciated rather than deducted in the year paid, which is where most self-prepared rental returns go wrong.

The building — not the land — is depreciated over 27.5 years for residential rental property and 39 years for non-residential property, using the straight-line method. Depreciation is not optional in effect: gain on sale is calculated as if it had been claimed, so failing to take it costs the deduction without avoiding the recapture.

Usually only within limits. Rental activity is generally passive, so losses offset passive income rather than wages. Taxpayers who actively participate may deduct up to $25,000 of rental loss against other income, phased out between $100,000 and $150,000 of modified adjusted gross income. Real estate professionals meeting the material participation tests are treated differently.

Two clocks start on the day the relinquished property closes: replacement property must be identified in writing within 45 days, and the exchange must be completed within 180 days, or by the due date of that year's return if earlier. Since 2018 like-kind exchange treatment applies to real property only, and the exchange is reported on Form 8824.

Depreciation lowers your basis while you hold the property, which increases the gain when you sell. The part of that gain attributable to straight-line depreciation on real property — unrecaptured section 1250 gain — is taxed at a maximum rate of 25% rather than the lower long-term capital gain rates. It applies whether or not the depreciation was actually claimed.

It splits a building's cost into components with shorter depreciable lives — fixtures, certain finishes, land improvements — so more depreciation lands in the early years instead of being spread over decades. It suits larger or recently acquired properties where the tax saved comfortably exceeds the study cost, and it increases the depreciation that will be recaptured on sale.

Often, yes. Where the average guest stay is short and substantial services are provided, the activity can be treated as a business rather than a rental, which changes both the self-employment tax picture and how losses are treated. Personal use of the property adds a second set of allocation rules. Short-term rentals rarely fit the standard Schedule E assumptions.

Ordinary and necessary travel to manage, conserve, or maintain a rental is deductible, but the primary purpose of the trip must be the rental, and mixed personal travel must be allocated. Keep a contemporaneous record of what you did and why. Trips to a property in a place you happen to enjoy visiting attract exactly the scrutiny you would expect.

The county appraisal district, not the city, county, or school district that sends the bill. Those taxing units set rates; the appraisal district sets value. This service area spans four districts — Harris, Fort Bend, Montgomery, and Waller — so an investor holding property across county lines deals with separate notices, separate protests, and separate deadlines.

Generally 15 May, or 30 days after the appraisal district mailed your notice of appraised value, whichever is later. Missing it usually ends the matter for that year, though limited late protests exist for clerical errors, multiple appraisals, and substantial over-appraisal. Diary-note the notice date each spring — the clock runs from the mailing, not from when you opened it.

Temporarily, yes. A homestead has long been capped at 10% a year. Since 2024 a separate "circuit breaker" has capped non-homestead real property below an inflation-adjusted value — $5,320,000 for 2026 — at 20% a year. The Legislature authorized it only for 2024 through 2026, so unless it is extended it expires on 31 December 2026.

Usually a Municipal Utility District. Much of Cypress, Katy, Fulshear, and the newer north-west Houston developments sits inside a MUD, which levies its own rate to repay the bonds that funded the water, sewer, and drainage infrastructure. The rate typically falls as that debt is retired — so two similar houses a mile apart can carry very different carrying costs.

No. The residence homestead exemption applies only to your principal residence, and with it the 10% appraisal cap. A rental gets neither. If you convert a former home into a rental, tell the appraisal district: leaving a homestead exemption in place on a property you no longer occupy leads to back taxes and penalties when it is caught.

Yes. Property tax on a rental is an ordinary operating expense deducted against rental income on Schedule E, and it is not subject to the cap that limits state and local tax deductions on a personal return. For Texas investors this matters: with no state income tax, property tax is the largest recurring tax the property generates.