Memo 1982-51Findings of Fact and Opinion of the Special Trial JudgeHALLETT, Special Trial Judge:Respondent determined a deficiency of $3,653 in petitioners' 1977 Federal income tax.The issues for decision are: (1) How should the total purchase price of two condominium properties acquired by petitioners during the taxable year be allocated between land and buildings for depreciation purposes;Petitioners resided in Los Angeles, California, when they filed their petition in this case.Depreciation Issue:During 1977, petitioners purchased for investment purposes two condominium properties known as the Via Serena property and the Calle Sonora property.

Investors can deduct the interest paid on their mortgage loans for income-generating properties, reducing their taxable income.

That’s your taxable amount. 

You need to meet one of them to be considered materially participating.Spend more than 500 hours on your rental businessDo substantially everything for the rental businessSpend more than 100 hours on the activity and no one other individual spends more time than you doSignificant participation activity for more than 100 hours, and your combined activity in all significant participation activities exceeds 500 hoursParticipating in the business for five of the 10 previous taxable yearsPersonal service activity (non income-producing) for three of the previous taxable yearsRegular, continuous, provable participation in the business for more than 100 hoursThe first three are the ones the majority of real estate investors will evaluate and attempt to qualify for....

Mortgage interest can be a significant deduction and can help lower your taxable income.Cost Segregation:Consider a cost segregation study, especially for commercial properties.

Investors who donate a conservation easement may be eligible for federal tax deductions and potentially state-level incentives, effectively reducing their taxable income.3) Opportunity Zones:Opportunity Zones are designated economically distressed areas where real estate investors can invest capital gains and receive substantial tax benefits.

Residential and commercial properties can be depreciated over a specific period, which reduces your taxable income.

Moreover, taking advantage of real estate tax deductions, such as mortgage interest, property taxes, and depreciation, can significantly reduce taxable income for property owners.

Generally, rental income is taxable to the person who receives it, and since you intend to live in the property and share it with renters, you would typically report the rental income on your tax return.4.

This depreciation expense can help reduce your taxable income.2) Passive Loss Rules: Your ability to deduct losses from rental real estate properties may be limited by the passive loss rules.