Tax Smart Real Estate Investors Podcast

Episode 363: Tax Filing Mistakes That Cost Real Estate Investors Thousands

Date: February 3, 2026
Host: Hall CPA (Tom & Nate)

Overview

This episode zeros in on the most common and costly tax filing mistakes made by real estate investors—from short-term rental reporting missteps to election blunders and missed deductions. Hall CPA’s Tom and Nate break down each error, its consequences, and how to avoid them, all with practical advice for investors ranging from beginners to advanced. Their core message: proactive, knowledgeable tax planning and specialist advice is essential for maximizing after-tax wealth and sidestepping the IRS’s traps.

Key Discussion Points & Insights

1. Misreporting Short-Term Rentals (STRs) on Schedule C Instead of E

Timestamps: 01:40 – 06:48

• Main Issue: Many CPAs incorrectly place short-term rental (STR) income on Schedule C instead of Schedule E, which leads to unnecessary self-employment tax (15.3%).
  • Tom: “I don’t know if I want to pay an extra 15 to the government…if I don’t have to.” [03:13]
  • Nate: “Permanent decisions always have consequences.” [02:33]
• When Schedule C Does Apply: Only if ‘substantial services’ (hotel-like amenities, daily meals, concierge, etc.) are provided; simply being “on call 24/7” doesn’t qualify.
• Insight: Most STR investors should properly file on Schedule E unless substantial services are clearly provided.

2. Not Filing an Extension When Needed

Timestamps: 06:48 – 08:53

• Risk: Forgetting to file an extension can result in expensive penalties if you miss tax deadlines.
  • Nate: “If you don’t…that can be $1,000 just right off the bat. So it’s not the most expensive thing in the world, but it can get costly with number of partners and how long you wait…” [08:44]
• Advice: Extensions must be proactively filed for both personal and business (partnership and S-corp) returns, especially for new entities.

3. Mistaking the Extension as an Extension to Pay

Timestamps: 08:53 – 11:02

• Misconception: An extension is only more time to file, not more time to pay. Taxes owed are still due by April 15.
• Tip: Make estimated tax payments by original deadline to avoid interest and penalties.
  • Nate: “Maybe you don’t make any estimate tax payments. Well, the government basically says…you borrowed money from us…we would like the interest on that.” [10:01]

4. Failing to Claim All Deductions

Timestamps: 11:02 – 12:55

• Common Oversights: Missing property taxes, insurance premiums, and other allowable expenses—often due to poor record-keeping.
  • Nate: “This is when bookkeeping is really important…Having QuickBooks, having a bookkeeper, having something or some software…” [12:11]
• Practical Advice: Set up clear record-keeping systems (avoid personal credit cards and manual Excel tracking where possible).

5. Erroneously Electing Out of Bonus Depreciation (An Irreversible Mistake)

Timestamps: 12:55 – 17:26

• Major Consequence: Once made, the election out of bonus depreciation is permanent, blocking future retroactive cost segregation studies and potentially tens of thousands in tax savings.
  • Tom (Case Study): “If he didn’t elect out of bonus depreciation…he could’ve pulled that forward to his current year…leading to tens of thousands of dollars in tax savings.” [16:00]
  • Nate: “This is a permanent election…that removes the optionality…when it felt like it didn’t matter, becomes a big deal.” [16:50]
• Action Step: Always discuss with your CPA before making or accepting this election.

6. Failing to Make Grouping Elections (e.g., Real Estate Professional Status Rep Elections)

Timestamps: 17:27 – 21:17

• Problem: Without proper grouping (e.g., the “Dash 9” election), qualifying as a real estate professional becomes impractical across multiple properties (requires material participation on each separately).
  • Nate: "If you had to spend 100 hours on every single property...that's 1,500 hours...the Dash 9 election...consider it one portfolio..." [18:24]
• Short-Term Rentals: Need a separate but similar grouping election.
• Other Groupings: Grouping active business interests (like dental practices and real estate holdings) also requires timely elections.
• Costly Mistake: Failure here can lead to overpaying large taxes, including unnecessary net investment income tax.
  • Nate: “I have a client...has overpaid a million dollars over the past four years by their tax preparer not having made that proper election.” [20:36]

7. Failing to Carry Forward Passive Losses (Form 8582)

Timestamps: 21:22 – 23:06

• What Can Go Wrong: Passive losses from real estate can be misreported or not carried forward by CPAs, causing investors to miss out on offsetting gains in future years.
  • Nate: “Go check that yourself, go see how many passive losses you have…double checking that when you change CPAs…” [22:33]
• Action Step: Always review your Form 8582 and communicate any carryforwards clearly with a new CPA.

8. Wrong Entity Reporting

Timestamps: 23:06 – 25:40

• Source of Confusion: Misclassification of LLCs (e.g., accidentally creating a partnership with a spouse, triggering extra filing requirements and deadlines).
  • Nate: “If you and your spouse have an LLC together...you now have a multi member entity...means you have a partnership tax return…” [24:19]
• S Corps and Rentals: Strong warning against putting rentals in S Corps; seek a second opinion if advised to do so.
• Careful: Real estate structures like tenants in common (TIC) are often mishandled, leading to IRS scrutiny.

9. Not Filing at All

Timestamps: 25:43 – 28:37

• Alarmingly Common: Many investors skip filing for years, thinking they don’t owe or are waiting on docs; this can backfire with lenders and the IRS.
  • Tom: “Several times per month…People coming to us, saying, I haven’t filed my tax return since 2020…” [25:45]
  • Nate: “That’s how you lose a lot of leverage with the IRS if you do that…Creates audit risk, creates triggers…” [27:01]
• Analogy: Not filing your return is “like speeding where you know the cop is sitting.” [28:37]
• Bottom Line: Always file—even if you don’t owe—so you don’t lose opportunities, create penalties, or raise audit risk.

10. Partial Asset Dispositions Missed

Timestamps: 29:07 – 31:24

• Case Example: Client missed out on $1M+ in deductions because prior CPAs did not report partial asset dispositions after property improvements.
  • Tom: “There was over $1 million in partial asset dispositions…never reported by their prior CPAs.” [29:32]
• Takeaway: Meticulous, real-estate-specific CPAs identify these nuanced savings that others miss.

Notable Quotes

• Nate [02:33]: “Permanent decisions always have consequences.”
• Tom [03:13]: “I don’t know if I want to pay an extra 15 to the government…if I don’t have to.”
• Nate [08:44]: “…that can be $1,000 just right off the bat.”
• Nate [12:11]: “This is when bookkeeping is really important…”
• Tom [16:00]: “He could’ve pulled that forward to his current year…leading to tens of thousands of dollars in tax savings.”
• Nate [20:36]: “I have a client...has overpaid a million dollars over the past four years by their tax preparer not having made that proper election.”
• Nate [27:01]: “…that’s how you lose a lot of leverage with the IRS if you do that.”
• Tom [28:37]: “Not filing your return is ‘like speeding where you know the cop is sitting.’”
• Tom [29:32]: “There was over $1 million in partial asset dispositions…never reported by their prior CPAs.”

Actionable Takeaways

• Always double-check how your STR income is reported—Schedule E is correct in most cases.
• File extensions for all relevant entities before the deadline; extensions don’t apply to payments due.
• Improve record-keeping: separate business accounts and robust bookkeeping systems are key.
• Never elect out of bonus depreciation without careful, client-specific evaluation.
• Proactively discuss real estate professional status (REPS) grouping elections—make timely elections.
• Review and track all passive losses (Form 8582) and communicate with new CPAs.
• Understand your entity’s tax status and ensure proper returns/extensions are filed.
• Never skip filing returns; always file, even if you think you owe nothing.
• Work with real-estate-focused CPAs—generalists will miss critical opportunities and details.

Final Thoughts

Hall CPA’s Tom and Nate make a compelling case: Small mistakes now can snowball into huge costs or lost opportunities. Their advice: being proactive, organized, and working with experienced real estate tax professionals is the surest path to strong after-tax outcomes.

“Tax filing and not all tax preparers are created equal. Hate to say it, but that’s just the case.”
— Tom [30:37]

For additional resources and to connect with specialists, visit: www.therealestatecpa.com/podcast

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