Today, we’re bringing back Mike Procaccio for his third appearance on the show. Mike’s our trusted accountant and one of the most valued members on our Build Your Team page. If you’re a Chicago landlord or house hacker—especially one managing your own multi-unit—you’ll want to take notes on this episode.

We dig into one of the most overlooked areas of owning a multi-unit property: how house hacking affects your taxes. If you’re living in one unit and renting out the rest, how much of your repairs, maintenance, property taxes, and upgrades can you write off? Mike breaks it all down clearly so you can avoid missing deductions and stay compliant as a smart Chicago property manager.

Mike walks through common mistakes—like incorrectly writing off upgrades to your owner-occupied unit or getting your rental-use percentages wrong—and offers a roadmap for tracking improvements that increase your basis (which becomes critical when you eventually sell). Whether you’re managing a two-flat in Logan Square or a four-unit in McKinley Park, this episode is packed with tax-saving advice specific to the Chicago market.

Mike also shares some under-the-radar strategies that only seasoned tax pros talk about. For example, timing matters: painting and repairs done after you move out but before the unit is rented are deductible, while doing them while living there is not. Similarly, tracking shared expenses—like snow removal or hallway lighting—can boost your deductions if you document correctly. These details can lead to thousands in savings.

Another tip Mike emphasizes: don’t rely on memory. Keep your receipts. Scan them. Organize them. You might not care today, but you’ll care 10 years from now when it’s time to sell and you need every improvement on your depreciation schedule to reduce your capital gains. If you don’t track it, you can’t prove it. That’s where good recordkeeping sets apart the casual house hacker from the seasoned Chicago property investor.

This episode also sheds light on the emotional side of real estate. Many first-time house hackers feel attached to their property and want to do everything themselves. But the moment you scale—get married, have kids, buy another rental—you’ll realize that outsourcing to a Chicago property management company isn’t just about convenience; it’s about protecting your investment. From a tax standpoint, it also creates more accurate reporting and better documentation.

If you’re a new investor or longtime house hacker, this episode is a must. And if you enjoy it, do us a favor—leave a review, share it, and send it to someone who needs to hear this today!

Questions We Answer in This Show

Q: What tax deductions are available to Chicago house hackers living in one unit?
A: If you own a two- to four-unit building and live in one unit, you can deduct a portion of your mortgage interest, property taxes, utilities, insurance, and maintenance. Your deductions are based on the square footage or percentage of the building that’s rented out. Make sure to track it accurately from year one.

Q: How do Chicago landlords track improvements versus repairs?
A: Repairs (like leaky faucets or repainting) are deductible. Improvements (like new cabinets or roofing) add to your property’s basis and are depreciated over time. Mike explains how improvements impact your tax position when you sell the building.

Q: Can you deduct repairs made to your owner-occupied unit while house hacking?
A: No. If you’re fixing up the unit you live in, those expenses are not deductible as rental expenses. However, you can add those upgrades to your cost basis, which will reduce your capital gains when you sell.

Q: What should Chicago property owners know about depreciation recapture?
A: When you sell your property, you must pay tax on the depreciation you claimed or were eligible to claim during ownership. This is called depreciation recapture, and it can hit your bottom line hard if you’re not prepared.

Q: Why is working with a Chicago property management company beneficial for tax strategy?
A: Property managers help organize income and expenses, making it easier to allocate deductions. GC Realty, for example, provides reports that streamline year-end tax prep and keep your documentation clean for your CPA.

Q: How can stepped-up basis rules help landlords planning to pass down property?
A: Waiting until the property is inherited rather than sold before death allows heirs to reset the cost basis to current market value, potentially eliminating hundreds of thousands in capital gains taxes.

Q: Why should landlords document upgrades from day one?
A: Improvements increase your property’s basis and reduce your taxable gains later. Tracking those costs up front ensures you get the benefit when you eventually sell.

Q: What happens if you refinance over the years and then try to sell?
A: Refinancing pulls cash out but doesn’t increase your tax basis. Many landlords forget this and face large tax bills despite minimal cash at closing.

Q: Can you deduct common area repairs in multi-unit house hacks?
A: Yes—but only the portion that corresponds with rental use. For example, if 70% of your building is rented, only 70% of common area costs are deductible.

Q: Why should landlords avoid timing repairs while still living in a unit?
A: If you move out first and make repairs while the unit is available for rent, those become deductible. If you do them while living there, they’re not.

Q: How do Chicago house hackers increase long-term tax efficiency?
A: Mike recommends planning move-outs strategically, documenting all capital improvements, and reviewing your depreciation schedules annually with a CPA.

Q: What mistakes do Chicago landlords make when selling a long-held rental?
A: Failing to plan for depreciation recapture, missing improvement records, and misunderstanding capital gains taxes often result in unexpected tax bills.

Q: How can house hackers work smarter with their CPA?
A: Keep property records, track unit-by-unit expenses, and use tools or property management services that cleanly separate personal and rental portions of the building.

Q: What’s the benefit of tracking your cost basis while managing your property?
A: Maintaining an accurate basis not only helps with future tax savings but makes you a more strategic investor when planning sales, refinances, or legacy planning.

Q: What’s one way Chicago house hackers can proactively reduce stress come tax season?
A: Work with a CPA year-round—not just at filing time—and use cloud-based tools or property management software to maintain accurate income and expense records by unit.

Q: What common deductions do new Chicago landlords often miss?
A: Many forget to deduct a portion of shared utilities, common area repairs, and professional fees like attorney consultations or accounting help, especially when self-managing.

Q: Why should Chicago house hackers consider hiring property management sooner rather than later?
A: Tax compliance, documentation, and tenant management are areas where property managers like GC Realty can save you from major financial and legal headaches, especially as your portfolio grows.

Q: How does house hacking align with long-term wealth building for Chicago landlords?
A: House hacking allows you to reduce living expenses, build equity, generate income, and learn real estate management hands-on—making it an ideal launchpad into real estate investing in the Chicago area.

Q: What tax issues should Chicago landlords keep in mind when passing property to heirs?

A: A stepped-up basis at inheritance can eliminate substantial capital gains, but poor planning can result in six-figure tax bills. Estate and tax planning with professionals is key.

Q: What red flags should landlords avoid when trying to maximize deductions?
A: Avoid commingling personal and business expenses, failing to prorate shared utilities, and skipping documentation. These errors can trigger audits or lead to missed savings.

Q: Can tax strategies vary based on Chicago neighborhood or zoning?
A: Absolutely. Local tax incentives, municipal regulations, and property classification can affect deductions, so working with professionals who understand Chicago's real estate landscape is essential.

Q: What role does depreciation play in a long-term house hacking strategy?

A: Depreciation offers significant tax deferral benefits. Used wisely, it lets you offset rental income, maximize cash flow, and delay taxes until a sale—at which point recapture planning becomes key.

Show Notes

00:38 – Welcome Mike Procaccio back to the show
02:01 – Overview of common house hacking deductions
03:20 – How to properly allocate expenses between rental and personal use
06:00 – Common mistakes: classifying improvements as repairs
10:15 – Best practices for maximizing tax efficiency when moving out
13:20 – What is depreciation recapture and how it hits at sale
16:00 – Examples of tax strategy with aging property owners
19:20 – Watch out for refinance traps before selling
22:40 – How documentation impacts future capital gains
24:55 – How house hackers benefit from professional tax advice
28:45 – Importance of tracking basis and tax records
30:15 – Why Chicago house hackers should track shared utility deductions
34:10 – How GC Realty helps simplify year-end reporting for owners
37:00 – Tips for scaling from house hacking to property investing

Guest Info

Guest Name: Mike Procaccio
Guest Company: Pro Financial Services Group Inc
Connect: Build Your Team

Because finding good tenants and property management shouldn’t feel like online dating.

Dear Investor,

If you are an investor in either the city or suburbs of Chicago, I would love to speak with you about how we can help you on your real estate journey. At GC Realty & Development LLC we help hundreds of Chicagoland real estate owners and brokers each year manage their assets with both full service property management and tenant placement services.

We understand that every investor’s goals are unique and we love learning about each client’s individual needs. If there is an opportunity to help you buy back your time by managing your rental property or finding quality tenants, please check us out.

Best Investing,