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Short Summary
Main recommendation: Real estate investors who expect taxable income should let their CPA know about new rental purchases so estimated quarterly tax payments can be reduced throughout the year, rather than overpaying and waiting for a refund. Rental losses and depreciation often offset rental income so that no quarterly payments are needed, and can also reduce taxes on other income such as W-2 wages. The speaker, Amanda Han, CPA, explains how quarterly estimated taxes work and when they apply.
Key Points
- Quarterly estimated taxes apply when you have taxable income that is not already withheld, such as business or rental income expected to be taxable after deductions, unlike W-2 wages where tax is withheld each month.
- Most rental investors do not owe quarterly taxes because write-offs, depreciation, and deductions often bring rental income to zero or to a loss.
- Rental losses can offset other income such as W-2 wages or business income, lowering total taxable income and therefore the quarterly payments owed.
- Overpaying through withholding or quarterly estimates effectively gives the IRS an interest-free loan, since refunds earn no interest, and that money could be used to buy or rehab properties.
- Quarterly payments can be made by mailing a voucher with a check or by paying online through the IRS website.
Details Worth Noting
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Concrete instructions:
- Tell your accountant as soon as you buy a rental property so they can estimate or recalculate your estimated taxes.
- Ask your tax advisor to estimate the tax savings from each property so you can adjust quarterly payments every quarter instead of waiting until year end.
- Choose a tax advisor who specializes in real estate, since their location matters less than their real estate expertise.
- Make quarterly payments either by mailing the CPA-provided voucher with a check or by paying online via the IRS website.
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The speaker gives an example: $100,000 of W-2 income plus $25,000 of rental losses results in $75,000 of taxable income, which can lower quarterly taxes owed.
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The speaker presents this as general information from her experience as a CPA and investor, not as individualized tax advice.
Bottom Line
Real estate losses and depreciation can often eliminate the need for quarterly tax payments and reduce them when you have other income, but the savings depend on your specific situation, so work with an investor-friendly CPA early after each purchase.
