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Author: Mark Ainely | Partner GC Realty & Development & Co-Host Straight Up Chicago Investor Podcast
Most real estate investors finish tax season, take a breath, and immediately stop thinking about taxes for the next nine months.
That is usually a mistake.
Tom and I sat down with Aaron Zimmerman from Brick House CPAs to talk about what investors should be doing now to prepare for their 2026 tax returns. The big takeaway was simple: tax planning is not something you do in December. By then, some options are already gone.
If you want to save money, avoid surprises, and make better decisions around your rentals, entity structure, purchases, sales, retirement accounts, and estimates, you need to get proactive while there is still time to act.
What we talked about in this episode
Start with clean books
Aaron’s first point was the least exciting but probably the most important: get your books clean.
If you are a business owner or real estate investor, your bookkeeping should not be something you figure out at the end of the year. You should know what your income statement looks like, what your balance sheet looks like, what you own, what you owe, and where your equity sits.
That matters because tax planning depends on accurate numbers.
If you think you made $50,000, but the books show you actually made zero, that is a completely different planning conversation. Your CPA cannot give you good advice if the information is wrong or incomplete.
Track your real estate professional status hours now
For anyone trying to qualify for real estate professional status, Aaron’s advice was direct: track your hours now.
Do not wait until tax time and try to recreate your year from memory.
Real estate professional status requires 750 hours and more than half of your working time. You also need to materially participate in your rentals. Aaron mentioned the main tests, including working 100 hours and more than anyone else, working 500 hours, or doing substantially all the activity.
That means you need documentation.
If you are going to Rental A, working on Rental B, handling your realtor business, working in your management company, or spending time on short-term rentals, track it weekly.
Nobody remembers what they did three months ago in enough detail to survive a serious review.
Short-term rental owners need to document time too
This same concept applies to short-term rental owners.
If your tax strategy depends on material participation, you need a record of what you actually did. Guest communication, cleaning coordination, vendor management, supply runs, pricing, marketing, maintenance, and inspections can all take time.
But if you do not track it, it is hard to prove.
Aaron mentioned he has a spreadsheet on his website that investors can use, but the main point is not the tool. The main point is the habit.
Track the work as you do it.
Plan your buys and sells before you pull the trigger
Aaron also talked about planning purchases and sales before they happen.
Too many investors buy first and ask tax questions later. That is backwards.
Before you buy, you should think through your entity structure. Aaron specifically warned that people sometimes buy rental property inside an S corp, which is usually not the best structure for rentals.
This is where your CPA and attorney should both be involved. The CPA helps you understand the tax side. The attorney helps set up the structure correctly.
The mistake is assuming you can fix everything later. Sometimes you can. Sometimes fixing it later is expensive, messy, or impossible without triggering other issues.
Understand when a property is placed in service
Tom asked about timing around cost segregation and large projects, and Aaron brought up the concept of a property being “placed in service.”
The simple version: the property becomes a rental property when it is ready and available to rent.
If you buy a vacant rehab property, it is just a property while you are renovating it. Once you are done, have it ready, advertise it, and make it available for rent, then it becomes placed in service.
That matters for tax planning because the timing can affect what deductions and strategies are available in that calendar year.
If you are doing a big rehab and want optionality around cost segregation, depreciation, or other planning items, do not wait until the end of the year to ask the question.
Do not wait until December for tax planning
This was one of the biggest points of the episode.
Schedule a tax planning call with your CPA early.
April, May, or mid-year is better than December. By December, there may still be a few things you can do, but your options are limited. Earlier in the year, you still have time to make strategic decisions.
That could include:
Buying or selling property
Adjusting estimated payments
Reviewing retirement contributions
Looking at entity structure
Considering cost segregation
Planning charitable giving
Reviewing pass-through entity tax elections
Looking at qualified business income deductions
Tax planning is not just about filing a return. It is about making decisions before the year is over.
Donor advised funds can help with charitable giving
Aaron explained donor advised funds, which are useful for people who are charitably inclined but want more control over timing.
A donor advised fund allows you to put money into a charitable account and take the deduction in that year, even if you do not distribute all the money to charities right away.
For example, if you put $20,000 into the fund, you may get the deduction that year, but you can decide later which charities receive the money.
This can be helpful if you want the tax benefit now but need more time to decide where the money should go.
Aaron also mentioned that appreciated stock can be especially useful here. If you bought stock for $100,000 and it is now worth $300,000, donating the appreciated stock into a donor advised fund may allow you to get credit for the higher value without paying the capital gain.
That is the kind of planning most people miss when they only think about taxes in April.
Get a tax estimate before the surprise hits
Aaron’s next point was getting a tax estimate.
This is where a lot of investors get caught. They show up in February or March, hand everything over, and then find out they owe thousands of dollars. At that point, it is not really planning anymore. It is damage control.
For W-2 employees, the big thing is making sure withholding is dialed in.
For self-employed people, it is paying estimates throughout the year so you reduce penalties and avoid a giant surprise.
If you extend your return, Aaron also recommended thinking about your first quarter estimated payment for the next year. The return deadline and the first estimated payment deadline can hit around the same time, which can feel like a double payment if you are not prepared.
Play offense and defense
One of the best lines from the conversation was that investors love playing offense with real estate, but they also need to play defense with taxes.
We spend hours trying to get another $50 in rent, negotiate a repair, or shave a little money off a project. But then we ignore tax planning that could save thousands.
That is backwards.
A good CPA is not just there to file forms. The right CPA can help you think through your strategy, avoid preventable mistakes, and make decisions that compound over years.
That does not mean you blindly trust anyone. Aaron said educated clients are better clients, and I agree. You should understand the basics yourself so you can ask better questions and know whether your advisor is actually helping.
Get organized and be proactive
Aaron wrapped it up with a simple order of operations.
Get your books clean. Track your time if you are relying on real estate professional status or short-term rental material participation. Plan transactions before they happen. Call your CPA early. Get a tax estimate. Pay accordingly.
That does not sound flashy, but it is how you avoid surprises.
The investors who do this well are not scrambling in December. They are making decisions while they still have room to move.
Questions We Answer in This Episode
Q: When should investors start tax planning for 2026 returns?
A: Now. Waiting until December limits your options. April, May, or mid-year gives you more time to make smart decisions.
Q: Why do clean books matter for tax planning?
A: Because your CPA needs accurate numbers. If your books are wrong, the tax strategy will be wrong too.
Q: What hours do real estate professionals need to track?
A: They need to track time spent on real estate activities, including rental work, management, realtor activity, and other qualifying tasks. Real estate professional status requires 750 hours and more than half your working time.
Q: What does “placed in service” mean?
A: It means the property is ready and available to rent. A vacant rehab becomes a rental property when it is actually ready for business.
Q: What is a donor advised fund?
A: It is a charitable giving account that lets you take a deduction when you contribute money, then distribute the funds to charities later.
Q: Why should investors get a tax estimate?
A: To avoid surprise tax bills, reduce penalties, and know whether withholding or estimated payments need to be adjusted.
Show Notes and Timestamps
00:00 Welcome to the Straight Up Tuesday Tip with Aaron Zimmerman
00:16 Why investors should not ignore taxes after filing season
00:31 Start with clean books and accurate financials
00:55 Why wrong books create the wrong tax planning conversation
01:08 Real estate professional status and tracking hours
01:52 750-hour requirement and material participation tests
02:28 Planning buys, sells, and entity structure before transactions
03:13 Cost segregation timing and placed-in-service rules
04:08 Why you should schedule a tax planning call early
04:29 Pass-through entity tax elections, QBI, retirement accounts, and HSAs
05:00 Donor advised funds explained
06:01 Donating appreciated stock and avoiding capital gains
06:51 Getting a tax estimate before filing season surprises you
07:31 Extension payments and first quarter estimated payments
08:00 W-2 withholding and self-employed estimated payments
08:30 Playing offense with real estate and defense with taxes
08:55 Why investors need qualified tax help
09:11 Aaron’s summary: organize, track, plan, estimate, and pay
09:57 Chicago fact and Brick House CPAs sponsor segment
12:02 Closing thoughts and why the right CPA can change your trajectory
Key Takeaways for Chicago Investors
Do not wait until December to start tax planning.
Clean books are the foundation of every good tax strategy.
Real estate professional status and short-term rental strategies require timely hour tracking.
Entity structure should be reviewed before buying or selling property.
A property needs to be placed in service before certain tax strategies matter.
Donor advised funds can help investors plan charitable giving more strategically.
Appreciated stock can be a powerful charitable giving tool.
W-2 employees should check withholding, and self-employed investors should pay estimates.
A good CPA can help you save money, avoid surprises, and make better long-term decisions.
Guest Info
Guest Name: Aaron Zimmerman
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,
Founder, Partner, Podcast Co-Host, and Investor
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