Real Estate Tax Changes You Need to Know
By Brian Wheeler
We’ve been taking on more clients with similar questions about the latest real-estate tax changes.So here’s a simple breakdown of what matters right now, and what you should be thinking about before you make any moves.
1. 1031 Exchange Tightening
The IRS is getting pickier on what qualifies, especially around timelines and what counts as “like-kind.”
What this means for you:
- You must stick to the 45-day ID and 180-day closing windows. No exceptions.
- Personal property is out—only real property qualifies.
- Make sure your replacement property is properly documented.
If you’re sloppy on the rules, the IRS won’t hesitate to turn your tax-deferred exchange into a taxable sale.
2. Depreciation Changes
Bonus depreciation has been phasing down every year. If you used to get 100% write-offs, those days are gone.
What this means:
- You may only be able to claim a reduced percentage upfront.
- You might need cost-segregation to squeeze more deductions.
- Expect more “spread-out” depreciation instead of one big hit.
This is where planning matters—timing purchases incorrectly can cost thousands.
3. Passive Loss Limitations
Rental losses are harder to claim unless you qualify as a real-estate professional, and the IRS is tightening scrutiny.
Key points:
- If you don’t materially participate, losses get trapped.
- If you do qualify, losses may offset your other income—but you must prove involvement.
- Short-term rentals have special rules that sometimes allow losses even if you’re not a real-estate pro.
This area is full of traps, and IRS examinations are on the rise.
4. Increased Attention on Property Flippers
The IRS is re-classifying more flips as ordinary income instead of capital gains.Why that matters:
- Capital gains = lower tax rate.
- Ordinary income = taxed at your top bracket + self-employment taxes.
- Intent matters. Frequency matters. Records matter.
If you’re flipping, you better have your facts straight.
5. State-Level Changes
Several states are tightening or revising rules on withholding, transfer taxes, and reporting requirements.
For owners with multi-state property:
- Expect more paperwork.
- Expect more withholding.
- Expect more states to fight over the same income.
Ignoring state rules is a fast track to penalties.
What You Should Do Now
To stay ahead of the changes—here’s the checklist I want every client to run through:
TO-DO LIST
- Review each property you own: income, expenses, depreciation schedules.
- Confirm whether you materially participate in each rental.
- Check your 1031 plans early—don’t wait until you’re under contract.
- Evaluate cost-segregation for any high-value rentals or commercial properties.
- Plan for reduced bonus depreciation before buying or improving property.
- Verify state-level filing and withholding rules if you operate in multiple states.
- Talk to us before selling, buying, refinancing, or starting a flip.
Good decisions come from facts, not assumptions—and the IRS is always happier when you make mistakes