Texas is one of the most active real estate markets in the country, and summer months accelerate that pace considerably. Whether you own rental properties, flip homes, develop land, or run a construction contracting business, the tax decisions you make in June directly shape your bottom line when filing season arrives. This guide walks through the most impactful 2026 tax strategies for Texas real estate investors and contractors.
General tax preparers handle W-2s and simple returns. Real estate tax planning requires knowledge of depreciation schedules, cost segregation, passive activity loss rules, 1031 exchange mechanics, and contractor-specific deductions. The financial stakes of getting these wrong are significant a missed cost segregation study on a commercial property can cost tens of thousands of dollars in deferred deductions.
For investors who also need to track quarterly tax obligations on rental income, see our guide on IRS Quarterly Estimated Tax Payments covering every Q2 calculation method and how to pay securely through EFTPS.
The IRS allows residential rental properties to be depreciated over 27.5 years and commercial properties over 39 years. These schedules apply only to building value, not land. Misallocating land value inflates deductions incorrectly and creates audit risk.
A cost segregation study identifies building components that qualify for 5, 7, or 15-year depreciation. Under 2025 bonus depreciation rules, 40 percent of components with recovery periods of 20 years or less can be fully expensed in year one. See IRS Publication 946 for the full depreciation schedules and bonus depreciation rules by asset class.
A Section 1031 like-kind exchange allows Texas real estate investors to sell one investment property and reinvest the proceeds into another of equal or greater value without triggering immediate capital gains tax. You must identify the replacement property within 45 days of closing and complete the acquisition within 180 days. A qualified intermediary must hold the proceeds between transactions.
Accurate financial records are essential for documenting the exchange and basis tracking. Our Bookkeeping Services Texas team maintains the transaction records that support a clean 1031 exchange file and seamless basis tracking into the replacement property.
Rental losses are generally passive and can only offset other passive income. If you qualify as a real estate professional under IRS rules more than 750 hours per year in real estate activities, exceeding time in any other profession your rental activities become non-passive, allowing losses to offset ordinary income. This election must be documented with contemporaneous time logs maintained throughout the year.
Section 179 expensing allows immediate deduction of qualifying equipment up to $1,160,000 in 2025. See IRS Publication 946 for the full Section 179 rules and listed property limitations that apply to passenger cars and heavy vehicles.
Materials, subcontractor labor, permits, and insurance premiums are deductible in the year incurred. Issuing 1099-NEC forms to subcontractors paid $600 or more is required by January 31. For payroll compliance on employees versus subcontractors, see our Payroll Management Texas guide covering TWC classification rules and the penalties for misclassification.
June is optimal for reviewing year-to-date rental income, vacancy rates, and repair expenses. For Texas-specific sales tax obligations on construction materials, see the Texas Comptroller for current exemption rules on contractor purchases. For franchise tax obligations on your Texas real estate LLC, see the Texas Comptroller franchise tax page.
For a complete mid-year profitability review of your real estate portfolio, see our How to Calculate Operating Income guide. For comprehensive tax and accounting support for your Texas real estate holdings, contact AccountingServices.com.
Under Section 1031, real property held for investment or business use can be exchanged for any other real property held for investment or business use. Personal residences and properties held primarily for sale do not qualify. For depreciation basis rules on the replacement property, see IRS Publication 946.
Texas investors only face federal capital gains rates on real estate sales. No state income tax applies. However, Texas franchise tax obligations apply to most real estate LLCs. See the Texas Comptroller franchise tax page for thresholds and filing requirements specific to real estate entities.
Job cost records, subcontractor contracts and 1099s, equipment receipts, vehicle mileage logs, bank statements, insurance certificates, and permits retained for at least seven years. Our Bookkeeping Services Texas team maintains these records digitally for audit-ready access at any time.
The best time is the year you place a property in service. Studies are most economical for properties above $500,000 in cost basis. See IRS Publication 946 for the asset classes available, and contact AccountingServices.com to discuss whether a study makes financial sense for your specific property.
Rental income and real estate gains create estimated tax obligations throughout the year. See our IRS Quarterly Estimated Tax Payments guide for the calculation methods that prevent underpayment penalties on real estate income, and pay through EFTPS to maintain a confirmation record of every payment.
Yes operating income analysis applies to real estate portfolios the same way it applies to operating businesses. See our How to Calculate Operating Income guide for formulas and examples applicable to rental property profitability analysis.
Every strategy in this guide from cost segregation to 1031 exchanges to passive loss elections requires accurate, well-organized financial records as the foundation. Our Bookkeeping Services Texas team maintains real estate-specific bookkeeping that tracks income and expense by property, making tax strategy analysis straightforward at any point in the year.
