Tax Implications of the Real-estate Market in Houston


Real estate investment often yields substantial returns, yet increased income doesn’t necessarily equate to higher taxes. While completely avoiding taxes is uncommon, the tax advantages inherent in real estate investment can lessen your tax liability. Consequently, you can lease apartments or sell real estate assets without relinquishing a significant portion of your earnings. 

With Houston, TX being home to cultural diversity, real estate investors are eligible for tax deductions, pass-through deductions, incentive programs, and various other tax advantages given how huge the real-estate market in Houston is. 

People often collaborate with a tax consultant in Houston, TX to understand if real estate aligns with their investment objectives. In this blog, we’ll understand various tax implications in the real estate market from a tax consultant’s perspective:

  • Property Deductions

Real estate deductions are effective in reducing your taxable income, typically covering expenses related to property management and business operations. Specifically, deductions for property taxes, mortgage interest, insurance, property management costs (including utilities and lawn care), and building maintenance can all contribute to tax reduction strategies.

Given the abundance of available deductions, maintaining accurate records of relevant expenses is essential. Without detailed records and receipts, claiming deductions becomes nearly impossible. This is why a lot of Individuals hire professional tax agencies. 

  • Depreciation 

Investors have the opportunity to deduct property depreciation from their taxable income, allowing them to claim a deduction for the natural deterioration of buildings over time. You will specifically receive depreciation deductions over the lifespan of the building as per the IRS schedule. Presently, residential properties are depreciated over 27.5 years, while commercial properties are depreciated over 39 years.

  • The FICA Tax

Self-employed individuals typically face a 15.3% FICA tax burden on their income. However, rental income is exempt from this requirement. Distinct from federal income tax, FICA taxes finance the Social Security and Medicare programs. Referred to as payroll taxes, FICA taxes are deducted automatically from your paycheck. Your employer forwards the deducted amount, along with its matching contribution (an additional 7.65% of your pay), to the government.

Real estate investment in Houston offers significant tax advantages, including deductions for property expenses and depreciation. Maintaining accurate records is crucial for maximizing deductions. Self-employed individuals can benefit from rental income exemptions from FICA taxes, further enhancing investment potential. So, consulting a financial advisor can help align real estate investment with individual financial goals.