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Real estate tax planning strategies with pitfalls

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1 year ago

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The Trump megalaw opened more pathways to tax savings on real estate investments atop the substantial ones that were already available.

Adjustments and the permanent extension of the opportunity zone tax credits that enable investors to defer or reduce capital gains in certain areas added to perennial incentives and strategies around 1031 exchanges, depreciation and cash-flow investing, said Rich Arzaga, founder of Monument, Colorado-based The Real Estate Whisperer Financial Planning. In that sense, what was possibly “the biggest news for real estate was actually among the items that were talked about the least” during the push led by President Donald Trump and his Republican allies in Congress to pass the legislation by July 4, Arzaga said.

“The opportunity zone benefits really phased out, so if this didn’t pass, the opportunity zones would almost completely go away,” he said. “They brought it back up and gave it new life.”

And investors may not realize that syndicates or real estate investment trusts can offer some of the tax advantages without majority ownership and management of the asset, said Rachel Richards, head of tax products at Gelt, an accounting and artificial intelligence-powered tax services firm that works with high net worth clients and business owners.

“What you’re looking for and how you’re involved in the investment can have an impact on how those investments will be taxed,” Richards said. “You are going to be heavily involved in operating and managing the investment. So it really comes down to prioritizing what tax outcome you’re looking for, versus how much time you’re willing to invest in the opportunity.”

READ MORE: 5 tax strategies that pay off in real estate and homeownership

Opportunity zone credit and 1031 exchanges

That time factor plays a large role in opportunity zone credit, which the new law will cut off at the end of next year and require governors to select new areas under tightened criteria every 10 years beginning in January 2027. Investments in rural areas in particular will get extra tax savings, while enhanced reporting requirements could give researchers and policymakers a clearer picture of the impact of opportunity zones moving forward. On the other hand, the gap between the end of the first version of opportunity zones from the Tax Cuts and Jobs Act of 2017 and the incoming rules under the One Big Beautiful Bill Act will likely reduce those investments across the board for a year or more.

Over the longer term, a real estate seller who uses a 1031 exchange to buy a similar property within 45 days could use the opportunity zone credit to apply their step-up in basis for the postponement of capital gains in the transaction, Arzaga noted. More generally, an “investment policy statement” that identifies the goal and strategy, the type and location of the property they would like to buy and the amount of capital at disposal could aid investors and their representatives in the 1031 process, he said.

“It can help you focus on exactly what sort of property you should be looking at,” Arzaga said. “Their focus gets much more narrow, and they end up with a property that is more to their liking.”

He and Richards pointed out that 1031 investors should avoid a common pitfall in what can turn into a rush to find the second corresponding asset within the deadline for the exchanges to secure the deferral of taxable gains.

“It’s something that you really want to plan in advance,” Richards said. “The closing day isn’t the day to say, ‘Oh, I should really do a 1031 exchange.'”

READ MORE: 2 methods to avoid capital gains in a home sale

Depreciation and other profitable losses

The write-offs from depreciation based on the wear and tear of a real estate property asset work differently by slashing the investor’s taxable income from the asset. That brings tax savings alongside some other frequently overlooked expenses among rental property owners in particular, such as building management fees, a maintenance reserve, utilities and landscaping in the complex mix of costs and income from that type of investment, Arzaga noted. Frequently, they only anticipate expenses such as the cost of a mortgage, property taxes and insurance.

“Those are only three of maybe 10 types of expenses that people can expect to pay,” Arzaga said. “It takes patience, and it takes being thorough, but it’s not that hard.”

For real estate depreciation, the investor must be using the property for a business purpose rather than as their residence, Richards noted. But they can tap into some of those write-offs by joining a group of investors in a syndicate rather than through the majority ownership and all of the obligations that come with it.

“Depreciation is tied to the property, but you don’t need to directly own the property in order to enjoy the benefits,” she said. “They just come to you in a different way than if you are a landlord yourself and owning real estate and renting that out.”

READ MORE: 11 tax tips on mortgages and homeownership

Cash flow over appreciation

Popular narratives about investing in real estate tend to ignore such nuances, instead emphasizing savvy buyers and sellers who “flip” properties after substantial upswings in value. That appreciation strategy ignores the fact that those profits stem from “market circumstances, and the investor has no control over that,” Arzaga noted. Furthermore, most real estate investors own single-family properties or duplexes that tend to appreciate at about 3% a year, with the possibility of incurring taxes during a sale that could further hurt their earnings, he said.

Instead, a strategy based on the precise calculation of returns and expenses that taps into depreciation write-offs and other tax incentives amounts to a thesis based on cash flow, also known as “passive” investing or a “core real estate” holding. That requires a more thoughtful approach — which investors prefer, once their financial advisor or tax professional explains it to them, Arzaga said.

“They say, ‘I’d rather have the cash flow,’ but it’s hard to get, and most people won’t do the work that it takes to get there,” he said.

The realities of the day-to-day issues involved with real estate ownership comes home to many investors who “get really excited about these things, and then they go to execute and find that they’re not really interested in becoming a landlord,” Richards said. That explains why many experts advise clients to pursue cash flow rather than chasing appreciation.

“That cash flow-positive business use can give you that guaranteed return on your investment, and then the appreciation is really the cherry on top,” she said.

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Accounting

AI-Driven Automation and Continuous Accounting Frameworks

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6 days ago

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August 15, 2026

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The accounting profession is undergoing a fundamental structural transition as enterprise finance departments shift from periodic month-end closes toward automated continuous accounting models. By integrating specialized machine learning algorithms directly into enterprise resource planning (ERP) platforms, chief accounting officers are transforming financial reporting from a retrospective exercise into a real-time operational asset.

The Shift from Periodic Close to Continuous Financial Reporting
Traditional accounting workflows heavily relied on manual data reconciliation, spreadsheet calculations, and multi-week closing cycles at the end of each fiscal period. In contrast, continuous accounting frameworks utilize automated software agents to process, validate, and post transactional data in real time as business activities occur.

Automated bank reconciliation tools cross-reference incoming bank feeds, invoice records, and purchase orders automatically. By resolving transactional variances instantly throughout the month, corporate accounting teams eliminate the traditional workload spikes associated with quarterly and annual closes.

Machine Learning in Audit Trails and Anomaly Detection
Advanced natural language processing (NLP) and machine learning tools are redefining internal audit and financial control environments. Automated systems analyze 100% of general ledger entries, identifying anomalous transactions, duplicate payments, and unauthorized journal entries in real time.

Rather than relying on random statistical sampling, corporate internal auditors can focus their attention on high-risk flags automatically surfaced by algorithmic monitoring platforms. This continuous risk assessment strengthens internal controls over financial reporting (ICFR) and significantly reduces fraud risk.

Evolving Roles for Accounting Professionals
As routine data entry and manual reconciliation tasks become fully automated, the skill set required for accounting professionals is shifting toward data analysis, system design, and strategic business advisory.
– Systems Governance: Accountants are increasingly responsible for monitoring algorithmic accuracy and managing data integration pipelines.
– Business Partnership: Finance professionals leverage real-time financial dashboards to advise operational leaders on margin management and working capital allocation.
– Regulatory Compliance Management: Accounting teams utilize automated platforms to ensure compliance with dynamic tax codes and international accounting standards.

Core Implementation Recommendations
1. Deploy Automated Reconciliation Tools: Integrate continuous transaction processing modules into existing enterprise ERP architectures.
2. Establish Algorithmic Governance Controls: Implement strict internal testing protocols to ensure automated accounting rules comply with GAAP/IFRS standards.
3. Reskill Accounting Teams: Invest in training finance staff on data analytics, workflow automation, and predictive financial modeling.

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Accounting

Global ESG Reporting Standards and Double Materiality Compliance

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2 weeks ago

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August 9, 2026

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Corporate accounting departments face expanding reporting expectations as international sustainability disclosure standards achieve regulatory enforcement across major global jurisdictions. Chief Accounting Officers (CAOs) and corporate controllers are establishing rigorous internal accounting controls to treat Environmental, Social, and Governance (ESG) metrics with the same data precision, auditability, and governance as traditional financial statements.

Regulatory Harmonization Under Global Sustainability Frameworks
The implementation of standardized sustainability reporting frameworks—notably rules established by international sustainability accounting boards—has created unified expectations for public and large private enterprises. Corporations must report standardized metrics covering greenhouse gas emissions (Scope 1, 2, and material Scope 3), energy utilization, workforce demographics, and supply chain governance.

In Europe and other participating international jurisdictions, double materiality principles are mandatory. Under double materiality, organizations must report both how external sustainability risks impact corporate financial performance, and how internal corporate operations affect surrounding environmental and social structures.

Integrating Sustainability Metrics into Core ERP Systems
To provide auditable non-financial data, enterprise organizations are integrating specialized carbon accounting and ESG management platforms directly into core ERP systems. Automated data collectors capture energy utility invoices, logistics fuel consumption metrics, and vendor compliance records in real time.

Establishing automated, traceable data pipelines ensures that non-financial reporting is supported by clear audit trails. This structured approach allows external financial auditors to provide reasonable assurance on sustainability disclosures during annual corporate reporting cycles.

Financial Impacts and Capital Market Disclosure
Accurate ESG reporting directly influences corporate cost of capital and institutional credit ratings. Commercial lenders and institutional asset managers systematically incorporate sustainability metrics into risk pricing models. Companies that demonstrate transparent, verifiable progress in operational energy efficiency and climate risk mitigation benefit from expanded access to green bond markets and lower debt pricing.

Action Steps for Accounting Leadership
1. Implement Double Materiality Frameworks: Conduct comprehensive assessments to identify material financial and operational sustainability metrics.
2. Build Auditable Non-Financial Data Pipelines: Automate ESG data collection within core accounting software to ensure data integrity.
3. Align Sustainability with Annual Financial Filings: Prepare non-financial disclosures concurrently with financial statements to satisfy regulatory audit expectations.

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Accounting

Modernizing Internal Controls: Machine Learning and Continuous Monitoring in Auditing

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2 weeks ago

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August 5, 2026

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Internal audit departments and corporate risk managers are modernizing internal control frameworks by shifting from periodic sampling techniques to continuous monitoring and machine learning analytics. As operational data volumes increase across enterprise organizations, automated control testing ensures financial integrity, prevents corporate fraud, and streamlines annual audit engagements.

The Limitation of Periodic Audit Sampling
Historically, internal and external auditors evaluated internal controls by reviewing random samples of financial transactions—often analyzing less than five percent of total ledger entries. In complex enterprise environments, periodic sampling methods carry inherent risks of overlooking localized financial misstatements, unauthorized disbursements, or operational control breakdowns.

In 2026, progressive internal audit functions are utilizing automated continuous monitoring platforms that evaluate one hundred percent of financial transactions in real time. Continuous control auditing systems continuously monitor general ledger entries, procurement approvals, and expense reimbursements across all operating subsidiaries.

AI-Powered Fraud Detection and Anomaly Identification
Machine learning models trained on historical corporate financial data excel at identifying subtle transactional anomalies that indicate potential fraud or operational error. Automated systems instantly flag duplicate invoice payments, unapproved vendor creation, unusual journal entry timing, and unauthorized override of authority thresholds.

When an anomaly is detected, the automated auditing platform generates an instant risk alert, allowing internal audit teams to investigate root causes immediately. Early detection prevents minor operational errors from escalating into material weaknesses in financial reporting.

Streamlining External Audit Preparation
Continuous internal control monitoring delivers significant benefits during annual external financial audits. External audit firms can review continuous audit logs and automated control testing documentation, reducing the time required for manual field testing.

This integrated approach lowers overall audit compliance fees, reduces administrative burdens on corporate accounting staff, and provides senior management and audit committees with real-time visibility into the organization’s overall risk profile.

Core Implementation Guidelines
1. Transition to 100% Data Testing: Replace legacy sampling methods with automated continuous audit monitoring systems.
2. Deploy Anomaly Detection Algorithms: Implement machine learning models to identify unauthorized transactions and operational control overrides.
3. Align Internal and External Audit Workflows: Coordinate continuous control testing protocols with external auditors to optimize annual compliance cycles.

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