For actual property traders, the finish of the 12 months isn’t nearly closing offers—it’s about making sensible strikes that might prevent hundreds in your tax invoice. If you happen to don’t plan forward, you would possibly miss out on essential tax advantages that might in any other case be reinvested into your portfolio.
You possibly can take management by implementing a number of easy methods earlier than Dec. 31 to make sure you’re minimizing your 2024 tax legal responsibility and setting your self up for a stronger monetary future. Right here’s a information to the best tax-saving strikes, particularly for mid-income traders, which you could make earlier than year-end.
1. Take Benefit of Accelerated Depreciation
Depreciation is likely one of the greatest tax benefits actual property traders have. If you happen to personal a rental property and haven’t completed a price segregation (price seg) research, now’s an excellent time to contemplate it. A price seg research breaks down your property into parts (like home equipment or fixtures) that may be depreciated quicker, resulting in bigger tax deductions within the early years of possession.
Even if you happen to don’t end the associated fee seg research by Dec. 31, closing on the property earlier than year-end nonetheless qualifies you for these advantages once you file your 2024 return.
Don’t personal property but? You possibly can nonetheless profit by investing in actual property offers that plan to do a price seg research. If the deal closes by the top of the 12 months, you’ll be able to make the most of the accelerated depreciation.
Take motion
Discuss to your CPA about beginning a price seg research or discover actual property fairness offers that may shut earlier than the 12 months ends.
2. Execute a 1031 Trade
If you happen to’re promoting a property this 12 months, a 1031 change allows you to defer capital positive aspects taxes by reinvesting the sale proceeds into one other property. This may help you keep away from a big tax invoice and maintain your cash working for you in a brand new funding.
Let’s say you promote a rental property for a $100,000 achieve. With no 1031 change, you can be going through as much as $20,000 in capital positive aspects taxes. By reinvesting in one other property by way of a 1031 change, you’ll be able to defer these taxes and maintain that $20,000 working for you in a brand new funding.
To qualify, you need to establish a substitute property inside 45 days and shut inside 180 days.
Take motion
Discuss to your CPA about whether or not a 1031 change is proper for you earlier than promoting your property.
3. Prepay Bills
A straightforward method to cut back your taxable revenue is to prepay bills to your rental property. Paying property taxes, insurance coverage premiums or making mandatory repairs earlier than the 12 months ends lets you declare these deductions for 2024. This technique is particularly helpful if you happen to’ve had a higher-income 12 months and need to maximize your deductions.
Take motion
Evaluation upcoming bills, and prepay them earlier than Dec. 31 to learn from the deduction this 12 months.
4. Use the Certified Enterprise Revenue (QBI) Deduction
If you happen to personal actual property by way of an LLC, S-Corp, and even as a sole proprietor, you could qualify for the Certified Enterprise Revenue (QBI) deduction. This deduction lets you cut back your taxable revenue by as much as 20% of your certified enterprise revenue. Eligibility is determined by your revenue stage, so examine together with your CPA to see if you happen to qualify for this deduction.
Take motion
Seek the advice of together with your CPA about whether or not your actual property enterprise qualifies for the QBI deduction and the way you’ll be able to benefit from it.
5. Shift Revenue to Your Kids
If in case you have kids, you’ll be able to cut back your tax burden by shifting revenue to them, particularly in the event that they’re in a decrease tax bracket. For 2024, kids can earn as much as $14,000 with out paying federal revenue taxes.
You possibly can pay your children to assist with duties in your actual property enterprise, akin to managing paperwork, advertising, or property upkeep. These wages are a deductible enterprise expense, which lowers your taxable revenue.
Bonus: If you happen to personal a sole proprietorship or single-member LLC, you don’t need to pay Social Safety and Medicare (FICA) taxes on wages paid to kids below 18. You may as well contribute their earned revenue to a Roth IRA to jump-start on retirement financial savings.
Take motion
Set up a system to pay your kids for his or her work earlier than year-end, and seek the advice of your CPA to make sure compliance with tax guidelines.
6. Maximize Your HSA Contributions
If in case you have a high-deductible well being plan (HDHP), contributing to a well being financial savings account (HSA) is a easy but highly effective method to cut back your taxable revenue. HSAs provide triple tax advantages:
- Contributions are tax-deductible.
- Earnings develop tax-free.
- Withdrawals for certified medical bills are additionally tax-free.
For 2024, you’ll be able to contribute as much as $4,150 as a person or $8,300 as a household, with a further $1,000 catch-up contribution for these 55 and older. You may as well make investments HSA funds, permitting them to develop tax-free over time.
Take motion
Max out your HSA contributions by Dec. 31 to cut back your taxable revenue for this 12 months.
7. Max Out Your FSA Contributions
Contributing to a versatile spending account (FSA) is one other method to save on taxes. FSAs let you put aside pre-tax {dollars} for certified bills.
There are two most important varieties: medical FSAs and dependent care FSAs. Right here’s how they work and the contribution limits for every in 2024:
Medical FSAs
- Contribution Restrict: For 2024, you’ll be able to contribute as much as $3,200 to a medical FSA.
- Eligible Bills: Medical FSAs can be utilized for certified medical bills like physician’s visits, prescriptions, dental work, imaginative and prescient care, and different healthcare-related bills.
- Restrictions with HSA: You can not contribute to each a well being financial savings account (HSA) and a medical FSA in the identical 12 months if you happen to are utilizing a high-deductible well being plan (HDHP). Nonetheless, you need to use a limited-purpose FSA (for dental and imaginative and prescient solely) alongside an HSA.
Dependent care FSA (FSA DC)
- Contribution Restrict: The contribution restrict for dependent care FSA is $5,000 per family (or $2,500 if married submitting individually).
- Eligible Bills: Dependent care FSAs cowl bills associated to the care of a kid below age 13, a partner with disabilities, or an aged mother or father, together with daycare, preschool, or in-home care.
- Can You Contribute to Each? Sure, you’ll be able to contribute to each a medical FSA and a dependent care FSA in the identical 12 months, as they cowl several types of bills and have separate contribution limits.
Essential guidelines
FSAs function below a “use-it-or-lose-it” rule, which means any unused funds on the finish of the 12 months could also be forfeited, until your plan gives a grace interval or a restricted rollover. Make sure to assessment your medical and dependent care wants for the rest of the 12 months and use any remaining FSA {dollars}.
Take motion
Maximize your tax financial savings by reviewing each your medical and dependent care FSAs, guaranteeing you’ve contributed to and used them properly earlier than the 12 months ends. If you happen to’re contemplating contributing to an HSA, make sure you’re not contributing to a regular medical FSA to keep away from eligibility conflicts.
8. Harvest Capital Losses
If any of your properties or different investments have misplaced worth this 12 months, you’ll be able to harvest capital losses to offset positive aspects elsewhere in your portfolio. This helps cut back your general taxable revenue for the 12 months.
If you happen to promote an asset at a $20,000 loss and have a $20,000 achieve from one other funding, your losses and positive aspects cancel one another out, which means no taxable achieve. In case your losses exceed your positive aspects, you’ll be able to offset as much as $3,000 of atypical revenue and carry over any remaining losses to future years.
Take motion
Evaluation your portfolio for underperforming investments you’ll be able to promote earlier than Dec. 31 to learn from this technique.
9. Discuss to Your Accountant About Tax Credit
Tax credit immediately cut back how a lot you owe in taxes, making them notably helpful for mid-income traders. Listed here are some key credit to contemplate:
- Baby Tax Credit score: If in case you have kids, this credit score can cut back your tax legal responsibility by as much as $2,000 per qualifying little one.
- Saver’s Credit score: If you happen to contribute to a retirement plan, akin to an IRA or 401(okay), and your revenue falls under sure limits, you could be eligible for the Saver’s Credit score. This supplies as much as $1,000 (or $2,000 for married {couples} submitting collectively) as a direct credit score to your taxes.
- American Alternative Tax Credit score: If you happen to or your dependents are paying for school, this credit score may give you as much as $2,500 per 12 months for eligible training bills.
These credit are sometimes probably the most related for mid-income earners, as they apply to frequent life conditions like elevating kids, saving for retirement, or paying for training.
Further credit to contemplate
Whereas these credit are tailor-made to typical mid-income tax conditions, you would possibly nonetheless profit from these extra credit, particularly if you happen to’re making bigger investments:
- Residential Power Credit score: If you happen to’ve put in renewable power techniques akin to photo voltaic panels or wind generators in your property, this credit score may help decrease your tax invoice.
- Electrical Automobile (EV) Credit score: If you happen to bought an electrical car this 12 months, you can qualify for as much as $7,500 for a brand new EV or $4,000 for a used EV.
- Alternative Zone Credit score: Investing in alternative zones can let you defer or cut back capital positive aspects taxes, making this a helpful credit score if you happen to’re concerned in bigger actual property or enterprise growth initiatives.
Take motion
Work together with your CPA to establish which credit apply to your scenario and make sure you’re maximizing your tax financial savings for 2024.
10. Charitable Donations
Donating to a professional charity is an effective way to offer again and cut back your taxes on the similar time. You possibly can donate money or appreciated property, akin to shares or actual property, and obtain a tax deduction based mostly on the honest market worth of the asset.
Take motion
Make any charitable donations earlier than Dec. 31 to get the tax deduction for this 12 months.
11. Contribute to an IRA
Whereas there are a number of methods it is best to pursue first, contributing to a person retirement account (IRA) is a viable method to cut back your tax legal responsibility. Contributions to a standard IRA are tax-deductible, which lowers your taxable revenue for the 12 months. Nonetheless, it’s essential to do not forget that this technique defers your revenue, locking it up in a government-controlled belief account till retirement.
For 2024, you’ll be able to contribute as much as $6,500 to an IRA (or $7,500 if you happen to’re 50 or older). You may additionally need to take into account a Roth IRA, which doesn’t present a right away tax deduction however permits for tax-free withdrawals in retirement.
Whereas this technique may help cut back your tax burden, it’s value contemplating how locking up your revenue till retirement suits into your general monetary technique.
Take motion
If contributing to an IRA suits your long-term objectives, you’ll want to make your contributions by the tax submitting deadline to cut back your taxable revenue for 2024.
Last Ideas
By implementing these end-of-year tax methods, you’ll be able to considerably cut back your 2024 tax burden and maintain extra of your hard-earned cash. Whether or not it’s making the most of accelerated depreciation, maximizing your HSA or FSA contributions, or contributing to an IRA, every step could make a significant distinction in how a lot you owe. It’s additionally important to contemplate how tax credit, charitable donations, and long-term funding methods like 1031 exchanges can additional improve your monetary place.
The secret is to behave earlier than the Dec. 31 deadline. Don’t wait till it’s too late—communicate together with your CPA, assessment your choices, and make the appropriate strikes to make sure you’re taking full benefit of all obtainable tax financial savings. By being proactive, you’ll not solely decrease your taxes now but additionally lay the groundwork for smarter monetary selections and stronger wealth-building sooner or later.
Be aware By BiggerPockets: These are opinions written by the creator and don’t essentially signify the opinions of BiggerPockets.
