Tax Preparation for Real Estate Agents, Investors, and Property Managers
Commission income without withholding, rental properties, multi-state filings, depreciation: real estate tax situations have layers. LMN Tax has worked with agents, brokers, landlords, and property managers across Northern Virginia and beyond.
The Tax Reality for Real Estate Professionals
Real estate agents and brokers earn commission income that comes in without any withholding, which means quarterly estimated taxes are supposed to be paid throughout the year. Many agents, especially those new to the industry or those who had a particularly good year, get hit with a large tax bill in April and don't understand why. The answer is usually missed estimated payments combined with self-employment tax that was not expected.
Rental property investors deal with a different set of issues: depreciation schedules, passive activity loss rules, property management expenses, and the question of how to structure multiple rentals as income grows. When you own multiple properties or properties in more than one state, the return gets significantly more complex.
Property managers handling other people's rentals need clean books to separate management fees from trust funds. The record-keeping requirements for property management are specific, and mixing management income with client funds creates real problems.
Common Tax Mistakes in Real Estate
These are the issues that come up most often when real estate professionals come to LMN Tax.
-
Not paying quarterly estimated taxes on commission income
Commission payments don't include tax withholding. Real estate agents are expected to pay estimated taxes four times per year. Skipping this results in a penalty at tax time, even if you pay everything owed by April.
-
Not taking depreciation on rental properties
Rental property depreciation is one of the most significant deductions available to landlords, and one of the most commonly missed. Not taking it doesn't save you anything; it just means a smaller deduction now and a larger gain when you eventually sell.
-
Passive activity loss rules not understood
Rental losses can't always be deducted against other income. The passive activity rules limit how and when losses can be used, with exceptions for real estate professionals. Most landlords aren't aware of the rules until they're surprised by them.
-
Multi-state filing requirements ignored
An agent licensed in Virginia and Maryland, or a landlord with properties in two states, has filing obligations in both states. Missing a state return creates penalties and interest on the state side.
-
Mixing management income with client funds
Property managers who hold security deposits or pass-through rents for owners need separate accounts and careful bookkeeping. Commingling these funds creates legal and tax issues that are hard to untangle later.
How LMN Tax Helps Real Estate Professionals
- Tax preparation for real estate agents and brokers with commission income
- Quarterly estimated tax setup and planning
- Rental property tax returns including depreciation schedules
- Multi-state tax filing for agents and investors operating across state lines
- Passive activity loss review and planning
- Property management bookkeeping and income separation
- Self-employment tax review for agents structured as LLCs or S corps
- Business entity review for agents and investors growing their portfolios
Related Services
Real Estate Taxes in Northern Virginia?
Talk to LMN Tax about your situation. Whether you're an agent with a big commission year, a landlord adding a second property, or a property manager who needs cleaner books.
10432 Balls Ford Rd, Suite 300, Manassas, VA · (By Appointment Only)
Real Estate Tax Questions
I had my best year in real estate and now I owe a lot. What happened?
Commission income doesn't have taxes withheld, so the full tax burden comes due at filing: income tax plus self-employment tax. If estimated payments weren't made during the year, you also have a penalty on top. LMN Tax can help you understand the full picture and plan better going forward.
I own three rental properties. Do I need to file in multiple states?
If any of the properties are in a different state, yes. You generally have to file in that state. LMN Tax handles multi-state returns as part of rental property tax preparation.
I've never taken depreciation on my rental property. Can I fix that?
Yes. If depreciation was not taken in prior years, there are ways to address it, including catch-up depreciation through an accounting method change. The specifics depend on your situation and how many years were missed.
Do I need an LLC for my rental properties?
Not necessarily. Whether an LLC makes sense depends on your liability concerns, how many properties you own, how they're financed, and other factors. LMN Tax can help you think through the question. We'll give you an honest answer specific to your situation, not a generic recommendation.
Can rental property losses offset my other income?
It depends on your income level and level of participation. The IRS passive activity rules generally limit rental losses, but an exception allows up to $25,000 in rental losses to offset other income if your adjusted gross income is $100,000 or less and you actively participate in managing the property. This allowance phases out between $100,000 and $150,000 AGI. See IRS Publication 527 for the full passive activity rules.