The Tax-Savvy Real Estate Investor
Tax Tips & Wealth Building Insights
JUNE 2025
Overview
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OBJECTIVE
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PROBLEM
Staying current with ever-evolving tax codes, accounting standards, and market shifts is challenging and time-consuming, especially for busy real estate investors and entrepreneurs. Mistimed acquisitions, missed deductions, and lack of awareness about impending legislative changes can erode profits and stall growth. Our playbook solves this problem by providing timely, curated, and expert-driven guidance—all in one place—so you can confidently take proactive action rather than react late to tax and regulatory changes.
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CONTACT US
At Aiola CPA, we measure our success by your results. By combining technical expertise, industry specialization, personal investment experience, and a client-centered approach, we aim to help you reduce tax liabilities, streamline operations, and ultimately build long-term wealth through real estate.
Ready to Take the Next Step?
Contact Us Today
CPA Insights
Welcome to the June 2025 edition of CPA Insights, your trusted source for tax and real estate updates. We’re here to keep you informed about the changes that matter most to your business and investments. This month, we’re focusing on emerging tax trends and legislative updates that could shape your strategies in the second half of 2025. Let’s explore what’s new and how you can stay ahead.
Section 1031 Like-Kind Exchange Compliance and Planning for 2025
While major tax reform proposals continue to make headlines, the IRS has issued important clarifications and reminders for real estate investors utilizing 1031 like-kind exchanges in 2025. Here’s what you need to know:
IRS Reaffirms Safe Harbor Rules for Deferred and Improvement Exchanges
In Private Letter Ruling 202520001, the IRS confirmed that real estate investors may use both the qualified intermediary (QI) and exchange accommodation titleholder (EAT) safe harbors for deferred and “parking” (reverse or improvement) exchanges.
The IRS emphasized that strict compliance with Reg. §1.1031(k)-1 and Rev. Proc. 2000-37 (as modified by Rev. Proc. 2004-51) is required. This includes:
Identifying replacement property in writing within 45 days of transferring the relinquished property.
Completing the exchange and receiving the replacement property within 180 days.
Ensuring that any improvements to replacement property are described in the identification and that the property is transferred within the exchange period, even if construction is not fully complete at the time of transfer.
Gain or loss is not recognized except to the extent of any “boot” (cash or non-like-kind property) received.
Strict Investment Intent and Documentation Required
The IRS continues to stress that Section 1031 applies only to real property held for productive use in a trade or business or for investment, not for property held primarily for sale (i.e., inventory or property flipped for quick resale).
In distressed sales or loan maturity situations, investors must clearly document their intent to hold both relinquished and replacement properties for investment or business use, not as inventory
Improvement/Construction Exchanges: Expanded Flexibility
Replacement property may include land plus improvements constructed during the exchange period, provided:
The improvements are specifically identified in writing within the 45-day identification window.
The property (including completed improvements as of the transfer date) is received within 180 days.
The property received must be “substantially the same” as identified, even if construction is not fully complete at the time of transfer.
Any funds not reinvested in like-kind property or improvements within the exchange period will be treated as boot and trigger gain recognition.
Who’s Affected?
- Real estate investors planning Section 1031 exchanges in 2025, especially those facing forced sales, distressed asset dispositions, or refinancing events.
- Partnerships, REITs, and investors engaging in complex, multi-party, or improvement/parking exchanges.
Your Next Steps
- Document your investment intent for both relinquished and replacement properties, especially in distressed or time-sensitive transactions.
- Engage a qualified intermediary (QI) and, if needed, an EAT to ensure compliance with all safe harbor requirements.
- For improvement exchanges, ensure all construction details are included in the 45-day written identification, and that the property is transferred within 180 days-even if construction is not fully complete.
- Review all exchange agreements and timeliness with our team to avoid inadvertent receipt of boot or constructive receipt of funds.
Staying Informed and Proactive
While no resource can predict future legislative outcomes with complete certainty, awareness of these current and impending changes empowers you to pivot your strategies accordingly.
At Aiola CPA, we emphasize proactive planning—running “what-if” scenarios, monitoring legislative updates, and collaborating closely with your legal and financial team—to ensure you remain agile, compliant, and poised to capitalize on opportunities in 2025 and beyond.
Evergreen Tax Strategies for Real Estate Investors
Uncovering tax strategies early is key to long-term success in real estate investing, and one of the first opportunities starts the moment you buy. This month, we’re focusing on a foundational move that can unlock major deductions: strategically placing your property in service.
Strategically Setting the In-Service Date: Maximize Operating Expense Deductions
What It Is
A property is considered in service when it’s ready for use (habitable) and available for rent (listed or advertised). This marks the official start of business activity for the property, triggering depreciation and allowing deductions for operating expenses.
Why It Matters
Expenses incurred before the in-service date must be capitalized and depreciated over time. But expenses after the in-service date can often be deducted in full, accelerating your tax benefit.
Key Consideration
The IRS pays close attention to in-service dates and expense timing. Your return must reflect an accurate sequence of setup, renovation, and operating costs. We’ll help you strategically plan this timeline to maximize deductions and stay compliant.
Putting It All Together
The timing of your in-service date can make or break your ability to deduct certain expenses. A proactive strategy ensures you don’t leave valuable deductions on the table.
Let’s make sure you get it right – reach out to us before placing your next property in service.
Case Study: Navigating Tax Uncertainty with the "One Big Beautiful Bill Act" in Short-Term Rental Real Estate
Note: For client confidentiality, the names and certain details in this case study have been altered.
Client Background
“Alex,” a California-based real estate investor, specializes in short-term rental properties. This month, Alex is considering a $2 million STR purchase to scale his portfolio and take advantage of significant tax savings. With the “One Big Beautiful Bill Act” in flux, Alex must assess how potential tax changes might affect the investment’s profitability.
Initial Situation (June 2025)
The “One Big Beautiful Bill Act” passed the House on May 22, 2025, with a 215-214-1 vote, proposing reinstatement of 100% bonus depreciation for qualifying assets through 2029.
As of June 2025, the Senate Finance Committee’s version (introduced June 16) maintains 100% bonus depreciation.
Negotiations continue, with some Republican senators pushing back due to the bill’s impact on the national debt. Alex must decide whether to move forward with the purchase amid this uncertainty.
Challenges Identified
- Uncertain Tax Provisions: Will bonus depreciation increase to 100% or remain at 40%?
- Time Value of Money: Upfront tax savings boost Alex’s ROI. A 60% swing in bonus depreciation makes a meaningful difference in Alex’s projected 2025 tax liability.
- Market Timing: Waiting for legislative clarity risks losing the deal or facing higher interest rates.
Strategic Actions Taken
Alex collaborated with our team to model scenarios:
- Proposed bill is signed into law:
- 100% Bonus Depreciation: Immediate depreciation deductions nearing $500,000 after utilizing a cost segregation study.
- More Tax Savings and Higher ROI: An increased tax deduction yields significantly more tax savings, allowing Alex to reinvest that cash into his next deal.
- Proposed bill does not move forward:
- 40% Bonus Depreciation: Expected deprecation deduction of roughly $200,000. Not as impactful as with 100% bonus depreciation, but still a six-figure tax deduction leading to significant tax savings.
- Reduced Year 1 ROI and After-Tax Cash Flow: A lower tax deduction means a lower reduction in tax liability, and more taxes paid to Uncle Sam.
Actions:
- Delayed closing to mid/late 2025, waiting for legislative updates.
- Planned energy-efficient upgrades (e.g., solar panels) to tap potential green credits.
- Structured the deal with contingencies for tax-driven price adjustments.
Quantifying the Impact
If the proposed bill gets the green light, anticipated bonus depreciation of $500,000 will save Alex $185,000 in federal taxes (37% tax bracket). If the bill does not pass, 40% bonus depreciation will still generate approximately $200,000 of bonus depreciation, yielding $74,000 in federal tax savings (37% tax bracket).
Strategic Insight: The proposed bill would accelerate Alex’s portfolio growth; otherwise, the acquisition requires tighter cash flow management.
Conclusion & Lessons Learned
The “One Big Beautiful Bill Act” highlights the need for adaptability:
- Scenario Planning: Evaluate best- and worst-case tax outcomes.
- Flexible Deals: Negotiate terms to adjust for legislative shifts.
- Expert Guidance: Consult our team to optimize strategies.
Accounting Guidelines
In the fast-moving world of real estate investing, having your finances in order is what makes it possible to grow and manage multiple properties without the headaches. One of the biggest keys to that is setting up your accounting software the right way from the start. Here’s why that matters, and how it can set you up for long-term success.
Build the Foundation: Set Up Your Accounting System Right the First Time
What It Is
Setting up your accounting software properly is more than simply starting a new software or system – it’s the backbone of your business. This means configuring key areas like your chart of accounts, property or entity tracking, settings and preferences, and custom reports. When done right, it keeps your finances organized, accurate, and ready to scale; when done incorrectly, it leads to higher costs, more time to correct, delayed filings, and more frustration.
Why It Matters
A well-structured setup helps you:
- Track income and expenses by property
- Simplify reporting and tax prep
- Avoid errors and reduce audit risk
- Scale without reworking your systems
- Make smarter decisions with tailored insights
It takes upfront effort, but the payoff is huge – saving you time, reducing stress, and giving you more control as your portfolio grows. If you plan to DIY your bookkeeping for material participation hours, a proper setup is required for successful ongoing data entry and reconciliation.
Key Considerations
- Customize your chart of accounts for property-specific transactions
- Implement class and location tracking to separate financials for each property or entity
- Design reports to monitor KPIs like cash flow and profitability, or budgeted vs. actual spending.
Action Steps
- Consult with Aiola CPA to optimize your accounting setup.
- Build a detailed, real estate-focused chart of accounts.
- Adjust settings to make your books your own.
- Implement property- and entity-level tracking.
- Create reports that highlight the metrics that matter to you.
Putting It All Together
A solid accounting setup turns chaos into clarity. With the right system in place, you’ll be able to scale confidently, stay tax-efficient, and make informed decisions every step of the way.
Let’s get your foundation in place – reach out to Aiola CPA to set your real estate business up for long-term success.
Market Outlook
A Buyer’s Market Takes Hold: Navigating Opportunities and Risks
The housing market is tilting toward buyers in 2025, creating a landscape of opportunities, and risks. More sellers than buyers, rising inventory, and softening prices signal a shift, while high mortgage rates and macroeconomic pressures shape the playing field. Here’s what investors need to know to thrive.
Inventory Up, Power to Buyers
- Listings Climb: Active inventory hits 2 million, up 15% from last year, though still shy of the 2.2 million pre-pandemic norm.
- Days on Market: Properties now linger for 48 days, a six-year peak, as 1.95 million sellers outpace 1.45 million buyers.
- Takeaway: Negotiate hard – sellers are feeling the pressure.
Prices Soften, Gaps Widen
- Growth Slows: National prices rise just 1.5% year-over-year, below the 2.4% inflation rate – real prices are slipping.
- Ask vs. Sale: Median asking price is $425,000, but sales close at $397,000 – a 7% gap, the widest since 2020.
- Activity: There are nearly 500k more sellers than buyers, the largest gap since 2015.
Mortgage Rates Hold Steady
- Rate Reality: 30-year fixed rates sit at 6.85%, stable but high, curbing buyer frenzy.
- Demand Resilient: Mortgage applications jump 20% year-over-year, buoyed by slight price dips in some areas.
- Takeaway: High rates favor cash buyers; financed deals need strong cash flow.
Macro Challenges on the Horizon
- Tariffs: An incoming 34% levy on Chinese imports could hike construction costs by 10-15%.
- Labor: Rising unemployment claims hint at softening demand.
- Sentiment: Consumer confidence tanked last month with some signs of rebounding, with the Economic Uncertainty Index at 60.5 (normal: 100).
- Takeaway: Build buffers into budgets and timelines.
Bottom Line
- Negotiate: 22% of listings are seeing price cuts; offer below asking and negotiate a price that works for you.
- Leverage Tax Benefits: With 100% bonus depreciation looking to make a comeback, strategically plan your next purchase.
- Budget for Tariffs: Plan for increased renovation budgets to account for higher material and labor costs.
Q&A: Top Questions from Our Clients
Below are three questions we’ve received from clients this month.
Q: How can investors take advantage of the restored 100% bonus depreciation for property improvements?
A: The bill restores 100% bonus depreciation for qualifying assets placed in service from January 19, 2025, through 2029, including certain property improvements with a depreciable life less than 20 years.
- Impact: With 100% bonus depreciation, you can immediately expense the full cost of these improvements, significantly reducing your taxable income.
- Key Consideration: Not all improvements qualify – structural changes to the building typically don’t. A cost segregation study can identify eligible components.
- Action Steps: Plan renovations or upgrades to align with the 100% bonus depreciation window. Consult Aiola CPA to see if your improvements qualify.
Q: How does the increased SALT deduction cap affect real estate investors in high-tax states?
A: The “One Big Beautiful Bill Act” raises the State and Local Tax (SALT) deduction cap from $10,000 to $40,000, with a phaseout for incomes over $500,000. For investors in high-tax states like California, New York, and New Jersey, this is a game-changer.
- Impact: If you pay $30,000 in property taxes and $20,000 in state income taxes, you can now deduct $40,000—up from $10,000—potentially saving thousands in federal taxes.
- Key Consideration: The phaseout means high earners must manage their income to maximize this deduction.
- Action Steps: Review your property tax and state income tax payments. If your income is near $500,000, consult Aiola CPA to explore income-timing strategies that preserve your full SALT deduction.
Q: What are the implications of the permanent 23% QBI deduction for real estate professionals?
A: The bill makes the Qualified Business Income (QBI) deduction permanent and increases it to 23% for pass-through entities like LLCs and S corporations. For real estate professionals, this can be a powerful tool.
- Impact: You can deduct 23% of your qualified income. For example, on $50,000 of rental income, that’s an $11,500 deduction.
- Key Consideration: You must meet strict IRS criteria for “trade or business” status, requiring regular, continuous, and substantial involvement—passive ownership won’t suffice.
- Action Steps: Document your hours and activities meticulously to prove your involvement. If needed, adjust your operations to meet the criteria. Aiola CPA can help you structure your business for maximum QBI benefits.
Key Takeaway
The “One Big Beautiful Bill Act” offers real estate investors excellent opportunities for tax reduction, but success hinges on proactive planning. Aiola CPA is here to tailor these strategies to your portfolio – reach out today to optimize your 2025 real estate strategy.
Endnotes & Resources
At Aiola CPA, we aim to equip you with the knowledge and tools to navigate tax strategies, avoid accounting pitfalls, and seize real estate opportunities in 2025. This section summarizes key legislative updates, market data, and accounting tools from this month’s newsletter to help you navigate 2025’s real estate landscape.
Legislative Updates
- “One Big Beautiful Bill Act”: Passed the House on May 22, 2025, with a 215-214-1 vote, proposing reinstatement of 100% bonus depreciation for qualifying assets through 2029. As of June 2025, the Senate Finance Committee’s version (introduced June 16) maintains 100% bonus depreciation. Negotiations continue, with some Republican senators pushing back due to the bill’s impact on the national debt.
- Section 1031 Like-Kind Exchange Compliance and Planning for 2025: The IRS has issued important clarifications and reminders for real estate investors utilizing 1031 like-kind exchanges in 2025, including:
- Reaffirming safe harbor rules for deferred and improvement exchanges.
- Emphasizing strict investment intent and documentation.
- Providing expanded flexibility for improvement/construction exchanges.
- Source: IRS Guidelines; Legislative Bill Tracker (June 2025); “One Big Beautiful Bill Act” (H.R. 1, May 22, 2025); Private Letter Ruling 202520001.
Real Estate Market Guidance
- Inventory Levels: Active listings hit 2 million. Properties now linger for ~48 days as 1.95 million sellers outpace 1.45 million buyers.
- Price Trends: National prices rise just 1.5% year-over-year. Median asking price is $425,000, but sales close at $397,000.
- Mortgage Rates: 30-year fixed rates sit at 6.85%. Mortgage applications jump 20% year-over-year.
- Macro Challenges: An incoming 34% levy on Chinese imports could hike construction costs. Consumer confidence dropped last month with some signs of rebounding.
- Source: Redfin (May 2025); Freddie Mac (May 2025); Economic Uncertainty Index (May 2025).
Thank You
We’re honored to be your trusted partner in navigating 2025’s tax and real estate landscape. Whether it’s optimizing bonus depreciation, dodging accounting errors, or timing market moves, Aiola CPA is here to help. Reach out to refine your strategy and secure your success!
To your continued success,
The Aiola CPA Team
Contact Information & Next Steps
Turning Knowledge into Action:
We hope this edition of The Tax-Savvy Real Estate Investor has armed you with valuable information and sparked ideas for enhancing your tax efficiency, refining your accounting practices, and exploring new market opportunities. However, information alone is not enough—real transformation requires taking the next step.
How Aiola CPA Can Help:
As a specialized CPA firm focused on real estate, our mission is to deliver proactive advisory services that turn complexity into clarity. Whether you’re a seasoned investor with a diverse portfolio or a newcomer aiming to build a stable foundation, we’re here to help you tailor strategies that align with your unique goals.
Services Offered:
- Comprehensive Tax Planning: From optimizing depreciation deductions to structuring acquisitions and refining entity setups, we identify tax-saving strategies tailored to your situation.
- Accounting Guidance: We can help you select and implement the right software tools, establish proper accounting protocols, and maintain accurate records that support solid financial decisions and smooth tax filings.
- STR and REPS Consulting: We assist in documenting hours, structuring workflows, and meeting IRS criteria for the STR loophole and Real Estate Professional Status—unlocking substantial tax benefits.
- Transaction Support: Contemplating a 1031 exchange, a large-scale renovation, or a multi-property acquisition? We provide scenario analysis, cost/benefit evaluations, and guidance on optimal timing so you can execute moves with confidence.
The Consultation Process:
- Initial Inquiry: Complete our intake form and receive an email from us with a packet of information on our services and pricing, and a link to schedule an intro meeting.
- Discovery Meeting: We’ll schedule a complimentary 30-minute video meeting to assess your situation, provide more info on our services and how we can help, and outline potential next steps.
- Proposal & Engagement: After understanding your goals and reviewing initial information, we’ll propose a tailored service plan detailing the scope of work, deliverables, and fees.
- Ongoing Advisory & Implementation: Once engaged, we become your partner in navigating the financial and regulatory landscape. Through initial strategic discussions, regular check-ups, timely alerts on legislative changes, and real-time advice, we help you stay up-to-date and proactive rather than reactive.
Staying Informed & Connected:
- Playbook Subscription: If you received this playbook from a friend or colleague, be sure to subscribe directly on our website to ensure you never miss an update. We’ll continue to provide market insights, regulatory alerts, and strategic recommendations in future editions.
- Social Media & Blog Posts: We are committed to additional content rollouts this year, as well. Follow us on our various social media channels and visit our website’s blog for timely articles, quick tips, and breaking news that can affect your portfolio.
- Webinars & Workshops: Stay tuned for invitations to our upcoming educational webinars and workshops, where we discuss advanced topics like complex deal structuring, Opportunity Zone updates, or leveraging retirement accounts for real estate investing.
Our Commitment to Your Success:
At Aiola CPA, we measure our success by your results. By combining technical expertise, industry specialization, personal investment experience, and a client-centered approach, we aim to help you reduce tax liabilities, streamline operations, and ultimately build long-term wealth through real estate.
Ready to Take the Next Step?
Contact us today to schedule a discovery call and learn how we can help you make the most of your investments, navigate a changing tax landscape, and achieve your financial goals.
