Investing Wisely: A Strategic Real Estate Tax Guide for Locum Tenens Physicians

Understanding Mortgage Challenges as a 1099 Contractor

Qualifying for a conventional mortgage requires extra preparation as a locum tenens physician. Traditional lenders follow strict guidelines set by Freddie Mac and Fannie Mae, favoring W-2 employees who can easily verify their income. While conventional loans offer competitive interest rates and eliminate private mortgage insurance (PMI) once you reach 20% equity, they can be harder to secure as an independent contractor.

Lenders require additional documentation to assess financial stability because 1099 physicians don’t have pay stubs or employer-verified income. To improve your chances of approval, be prepared to provide:

• Two years of tax returns: The most reliable way to verify income as an independent contractor.
• Profit-and-loss statements: If you operate as an LLC or S-Corp, these statements help demonstrate earnings.
• Bank statements: An alternative proof of income if you lack two years of tax returns.

If meeting these conventional mortgage requirements proves challenging, physician-specific loan programs can provide more flexible financing options tailored to your unique financial situation.

Physician-Specific Loan Programs: A Flexible Financing Solution

Securing a conventional mortgage can be challenging if you have less than two years of locum tenens experience. Fortunately, some lenders recognize physicians’ financial stability and offer specialized physician loans to accommodate their unique income structures.

Physician mortgage loans provide several key benefits:

• Student loan flexibility: Lenders focus on your monthly student loan payments rather than total debt, making qualifying easier.
• Flexible income verification: Many lenders accept a signed employment contract as proof of income instead of requiring tax returns or pay stubs.
• Low to no down payment: Depending on the lender and your financial profile, you may only need to put down 0–10%.
• No private mortgage insurance: Since PMI is no longer tax-deductible, avoiding it can result in significant long-term savings.

While physician loans offer greater flexibility, they often come with slightly higher interest rates to offset lender risk. Additionally, they typically require a strong credit score, though a larger down payment may help compensate. Most physician loan programs are also limited to primary residences, meaning they can’t be used for investment properties.

Understanding these factors can help determine whether a physician-specific loan aligns with your real estate investment goals.

Beyond securing the right financing, real estate investing offers powerful tax advantages to help locum tenens physicians maximize their earnings and build long-term wealth.

Tax Benefits of Real Estate Investments

Owning real estate as a locum tenens physician provides valuable tax-saving opportunities, allowing you to keep more of your hard-earned income. By leveraging key deductions and exemptions, you can significantly reduce your tax burden while building long-term wealth.

Here are some of the most impactful tax benefits:

• Real estate tax deductions – You can deduct expenses related to your property’s operation, management, and maintenance, including property taxes, mortgage interest, repairs, and depreciation.
• Home office deduction – If you use part of your home exclusively for business purposes, such as managing your locum tenens contracts or telemedicine work, you may be eligible to deduct a portion of your rent, utilities, and other related expenses.
• Capital gains exemptions – When selling a primary residence, you can exclude up to $250,000 in capital gains (if single) or $500,000 (if married) from taxation, provided you meet ownership and residency requirements.
• Rental property deductions – If you own rental property, you can reduce your taxable income by deducting advertising, legal fees, property management costs, and equipment purchases.

Whether you’re applying for a conventional mortgage or a physician loan, a strong financial profile can help you secure better terms and lower interest rates. Even a slight reduction in your rate can lead to significant savings over the life of your loan. To maximize your borrowing power, aim to meet these key financial benchmarks before applying:

• Maintain a high credit score: A credit score of at least 620 is required for a conventional mortgage, but aiming for 720 or higher will unlock the best interest rates. Make on-time payments and keep your credit utilization below 30% to improve your score.
• Lower your debt-to-income (DTI) ratio: Lenders prefer a DTI ratio below 43%, including your future mortgage. Paying down high-interest debt can improve this ratio, and if student loans are a barrier, a physician loan may offer more flexibility.
• Show consistent income: While tax deductions can reduce your liability, excessive write-offs may lower your reported income, making it harder to qualify for a mortgage. Balance your deductions to ensure your earnings appear stable to lenders.

Real estate is a powerful tool for diversifying your portfolio, but its benefits extend beyond property appreciation. As a locum tenens physician, strategically investing in real estate can provide passive income, tax advantages, and long-term financial stability. Here’s how:

• Generate passive income with rental properties: Rentals can appreciate while generating steady income. In many cases, rental income can cover or even exceed your mortgage payments, allowing your investment to pay for itself. However, managing a property requires time and effort. Hiring a property manager can ease the workload, but it will reduce your overall profits.
• Defer capital gains taxes with a 1031 exchange: If you reinvest profits from selling a property into a similar one of equal or greater value, a 1031 exchange allows you to defer capital gains taxes. Remember that this strategy applies to investment properties, not primary residences.
• Reduce taxable income through depreciation: Real estate investors can deduct depreciation and property maintenance costs, lowering taxable income while preserving cash flow. However, taking too many deductions can reduce your reported income, which may impact future mortgage approvals.

Creative Real Estate Investment Tax Strategies for Locum Tenens Physicians

As part of your wealth-building strategy, there are tax strategies unique to locum tenens professionals:

• Primary residence exemption: Tax law allows an exemption on capital gains to reduce your taxes to $0.00 on the sale of your primary residence. As a locum tenens professional, when you travel to different locations based on your contract, you can maintain a residence, which is partially rented out or rented out on a short-term basis. You can retain residency for 2 out of the last 5 years, which does not need to be continuous. In that case, the IRS exempts capital gains taxes of $250,000 for single individuals and $500,000 for married individuals.
• Self-directed retirement account investments: Unlike a W2 employee, you are limited to retirement contributions of $23,500 (or $30,500 if you are 50 or older). Furthermore, you may also be limited to employer-provided retirement funds. As a self-employed locum tenens professional with an LLC, your retirement contributions can be as much as $300,000 in any year, allowing you to direct your retirement through self-directed accounts into real estate investments. These self-directed accounts, if structured correctly, grow tax-free.

Investing in real estate as a locum tenens physician requires careful planning, but with the right mortgage, tax strategies, and investment approach, it can be a game-changer for building long-term wealth.

If you need expert advice on mortgage approvals, tax strategies, or financial planning for real estate investments, The Doctor’s CPA can help. Let’s create a plan that works for you.

Schedule your consultation today.