Depreciation and Cost Segregation

Every rental property you own generates depreciation deductions — the IRS lets you write off the building’s value over 27.5 years for residential or 39 years for commercial. On a $1.2M condo in Brickell (with $300K allocated to land), that’s roughly $32,700 per year in depreciation on the residential structure alone. It’s not cash out of your pocket, but it reduces your taxable rental income dollar for dollar.

A cost segregation study goes further. It reclassifies components of the building — appliances, flooring, cabinetry, landscaping, parking surfaces — into 5, 7, or 15-year recovery periods instead of 27.5 or 39. On a $2M multifamily purchase, a cost seg study can typically accelerate $300K to $500K in deductions into the first few years of ownership. If you’re a real estate professional (more on that below), those deductions offset your other income directly.

Real Estate Professional Status and Why It Matters

This is the single most valuable tax designation for Miami real estate investors. If you qualify as a real estate professional under IRS rules, your rental losses are no longer passive — they can offset W-2 income, business income, investment income, everything.

The requirements: you must spend more than 750 hours per year in real estate activities AND more than half your total working hours must be in real estate. A full-time surgeon who owns three rental condos won’t qualify. A spouse who manages properties full-time while the other spouse earns W-2 income? That works — if documented properly.

Documentation is the whole game. The IRS audits real estate professional status aggressively. You need contemporaneous time logs, not a spreadsheet you put together the night before your tax appointment. We set clients up with tracking systems at the start of the year so the records are already there when filing season arrives.

1031 Exchanges in South Florida

Selling a rental property in Miami? A 1031 like-kind exchange lets you defer the capital gains tax by rolling the proceeds into another investment property. On a property with $500K in gains, that could mean deferring $100K to $150K in federal taxes. In a market like Miami where property values have climbed steeply, the gains on properties held even five or six years can be substantial.

The rules are strict. You have 45 days from the sale to identify replacement properties and 180 days to close. The exchange must go through a qualified intermediary — you can’t touch the funds. We coordinate with your intermediary and your real estate attorney to make sure the timelines and documentation hold up.

One thing worth knowing: Florida’s documentary stamp tax applies to the new purchase in a 1031 exchange. It’s $0.70 per $100 of the sale price ($0.60 in all counties except Miami-Dade, which charges $0.60 plus a $0.45 surtax). On a $2M replacement property in Miami-Dade, that’s about $21,000 in doc stamps. Not a dealbreaker, but it’s money you need to plan for.

Florida Homestead Exemption and Property Tax Strategies

If any of your properties is your primary residence, Florida’s homestead exemption knocks up to $50,000 off the assessed value for property tax purposes. It also caps annual assessment increases at 3% (the Save Our Homes cap), which in a market like Miami where property values have surged 30%+ in some areas, saves thousands per year.

For investment properties, there’s no homestead exemption and no assessment cap — your property taxes track full market value. Miami-Dade’s millage rate varies by municipality, but you’re generally looking at 1.5% to 2.1% of assessed value annually. On a $1.5M investment property, that’s $22,500 to $31,500 per year in property taxes. All deductible against your rental income, but still a major expense to factor into your cash flow projections.