You’ve worked hard to make it in real estate. And wouldn’t it be nice if Uncle Sam cut you some slack every now and then?
Good news — you might be able to save a bundle in taxes using real estate tax forms that many people ignore (or haven’t even heard of till now).
In this article, we’ll share some of our favorite, often overlooked real estate tax forms, as well as explain what they are, who they’re for, and give examples of how they might be used.
Real estate professionals, agents, and brokers.
Jane is a real estate agent who owns several rental properties. She rents out a duplex, a triplex, and a single-family home. During the year, Jane earns a total of $50,000 in rental income from all three properties, but she also incurs $60,000 in expenses, including mortgage interest, property taxes, and repairs. As a result, Jane has a passive activity loss of $10,000 from her rental properties ($60,000 - $50,000).
To report this information to the IRS, Jane would use Form 8582. On the form, she would report the rental income and expenses for each property, as well as any passive activity losses. If Jane has no passive income, she can only offset $25,000 of the passive losses against her ordinary income in the current year — any remaining loss will be carried forward to offset passive income in future years.
Form 8824 is used to report like-kind exchanges of real property. A like-kind exchange allows a taxpayer to defer paying taxes on the gain from the sale of a property by using the proceeds from the sale to purchase a "like-kind" replacement property. This is often used by real estate investors to trade up to a more valuable property without paying taxes on the gain from selling the original property.
Note: This form is used in a 1031 Exchange.
Real estate investors.
Mike is a real estate investor who purchased a rental property for $200,000 many years ago. The property has appreciated significantly in value and is now worth $500,000. Mike is interested in trading up to a larger rental property that will generate more income, so he finds a suitable replacement property that he wants to purchase for $600,000.
Instead of selling the original property and paying taxes on the $300,000 gain ($500,000 - $200,000 original purchase price), Mike chooses to do a like-kind exchange and use the proceeds from the sale of the original property to purchase the replacement property. To report this exchange to the IRS, Mike would file Form 8824, which includes information about the properties involved in the exchange and the amount of gain deferred.
Form 8993 is used by Qualified Opportunity Funds (QOFs) to report their investments in Qualified Opportunity Zones, which are designated low-income communities that are eligible for certain tax benefits to encourage investment. Learn more about this and other government incentive programs.
Real estate investors, non-profit organizations, etc.
David is a real estate developer who wants to invest in a Qualified Opportunity Zone (QOZ) to take advantage of the tax benefits. He sets up a Qualified Opportunity Fund (QOF) and raises $1 million from other investors to invest in a QOZ-designated property.
David uses $500,000 of the fund's capital to purchase a commercial building in the QOZ and makes $200,000 in improvements to the property. The QOF holds the property for at least ten years.
At the end of the ten years, the QOF sells the property for $800,000 and distributes the proceeds to the investors. The QOF also files Form 8993 to report the investments made in the QOZ and the gains or losses from the sale of the property.
Form 5695 is used to claim credits for certain energy-efficient property improvements made to rental properties. These credits encourage property owners to make energy-efficient upgrades to their buildings, such as installing solar panels or upgrading heating and cooling systems.
Real estate investors and developers.
Cheryl is a landlord who owns a rental property that she wants to make more energy-efficient. She installs solar panels on the roof of the building and replaces the old heating and cooling system with a new, more energy-efficient one. The total cost of the upgrades is $30,000.
Cheryl can claim a credit for the cost of the energy-efficient property improvements on her tax return by using Form 5695. On the form, she would report the cost of the upgrades, as well as the type and size of the property and the type of upgrades made.
Form 1065 is used by partnerships to report their income, gains, losses, deductions, and credits to the IRS. It is used to report the partnership's financial activity for a given tax year, and it is used to calculate each partner's share of the partnership's income, which they will report on their own individual tax returns.
Real estate investors in a partnership.
Jack and Jill are business partners and own a rental property business. They form a partnership for the rental properties and decide to divide the profits and losses equally. During the tax year, the partnership earned $800,000 in rental income and incurred $500,000 in expenses such as mortgage interest, property taxes, and repairs. The partnership's net income is $300,000 ($800,000 - $500,000).
To report this information to the IRS, the partners would file Form 1065. On the form, the partners would report their rental income, expenses, and net income. They would also provide each partner's name, social security number, and their respective share of the partnership's income, deductions, and credits. Each partner would then use the information provided on their Schedule K-1 to report their share of the income on their individual tax returns.
Form 1040-ES (Estimated Tax for Individuals) is used by individuals to estimate and pay their federal income tax quarterly rather than all at once when they file their annual tax return (Form 1040). If you expect to owe at least $1,000 in taxes for the current year and your tax liability was not withheld from your salary or other income, you are required to make estimated tax payments.
Form 1040-ES is typically used by self-employed individuals, people with a lot of investment income, or those who expect to owe a significant amount of taxes. However, anyone who expects to owe $1,000 or more in taxes and have yet to have enough tax withheld from their income can use Form 1040-ES to make payments throughout the year, so they don't owe a large amount when they file their annual return.
Samantha is a property wholesaler and expects to earn $50,000 this year. She doesn't have any tax withheld from her wholesale earnings, so she expects to owe $8,000 in taxes for the year ($50,000 x 0.16 federal tax rate).
To avoid owing a large sum of taxes when she files her return, Samantha uses Form 1040-ES to calculate and make estimated tax payments every quarter. She estimates her income for each quarter and calculates the taxes she will owe based on her expected annual income and deductions. She then makes payments to the IRS each quarter, and by doing so, avoids any underpayment penalties and makes sure that her taxes are paid on time.
Form 1099-K is used to report certain types of payment transactions to the Internal Revenue Service (IRS) and the payee. The form is used to report payment card transactions, such as those made with credit cards or debit cards, and transactions made through third-party payment networks, like PayPal or Venmo.
Note: Not all third-party payment networks will issue a 1099-K, so it’s especially important to track transactions. Learn more about the tax implications of third-party payment apps, as well as the pros and cons of collecting rent through Venmo and the like.
Entrepreneurs, independent landlords, and rental property owners.
John is a landlord who rents out a vacation home through an online vacation rental platform. He accepts payments from renters through the platform's online payment system, which includes credit card and electronic payment options.
During the year, John receives $50,000 in rental income from the vacation home. The platform then issues John a Form 1099-K, reporting the total rental income received through the platform's payment system.
John uses the information on Form 1099-K to report the rental income on his tax return. He reports the total rental income from the vacation home, including the income reported on Form 1099-K and any other rental income received during the year. He also claims any related expenses, such as mortgage interest, property taxes, repairs, and depreciation.
We hope you enjoyed our breakdown of some of the lesser-known tax forms — many of which could save you a lot of time and money come tax season. But we’d be remiss if we didn’t recommend some “best practices” for handling your real estate taxes.
Firstly, ensure you stay on top of your bookkeeping — sloppy bookkeeping wastes time and causes frustration for you or your accountant and, worst case, legal trouble.
Secondly, always consult a certified tax professional before using any of these forms yourself. Some forms, like the 8893, have strict requirements to meet, and you’d benefit from the trained eye of a tax professional.
Looking for more ways to maximize your real estate tax benefits? Read our blog post 5 Tax Tips Every Landlord Should Know.
Cody Rudolph is a real estate investor and digital marketing expert who writes about real estate investing, marketing, finances, software, and more at CodyRudolph.com.
Azibo, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.