For actual property traders, the finish of the 12 months isn’t nearly closing offers—it’s about making sensible strikes that would prevent hundreds in your tax invoice. For those who don’t plan forward, you would possibly miss out on important tax advantages that would in any other case be reinvested into your portfolio.
You may take management by implementing just a few 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 simplest tax-saving strikes, particularly for mid-income traders, which you can make earlier than year-end.
1. Take Benefit of Accelerated Depreciation
Depreciation is without doubt one of the greatest tax benefits actual property traders have. For those who personal a rental property and haven’t performed a value segregation (value seg) examine, now could be a superb time to think about it. A price seg examine breaks down your property into parts (like home equipment or fixtures) that may be depreciated sooner, resulting in bigger tax deductions within the early years of possession.
Even in the event you don’t end the fee seg examine by Dec. 31, closing on the property earlier than year-end nonetheless qualifies you for these advantages while you file your 2024 return.
Don’t personal property but? You may nonetheless profit by investing in actual property offers that plan to do a value seg examine. If the deal closes by the tip of the 12 months, you may reap the benefits of the accelerated depreciation.
Take motion
Speak to your CPA about beginning a value seg examine or discover actual property fairness offers that may shut earlier than the 12 months ends.
2. Execute a 1031 Alternate
For those who’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. And not using a 1031 change, you possibly can be going through as much as $20,000 in capital positive aspects taxes. By reinvesting in one other property by a 1031 change, you may defer these taxes and maintain that $20,000 working for you in a brand new funding.
To qualify, you will need to determine a alternative property inside 45 days and shut inside 180 days.
Take motion
Speak to your CPA about whether or not a 1031 change is proper for you earlier than promoting your property.
3. Prepay Bills
A simple approach to cut back your taxable earnings is to prepay bills in your rental property. Paying property taxes, insurance coverage premiums or making needed repairs earlier than the 12 months ends lets you declare these deductions for 2024. This technique is particularly helpful in the event you’ve had a higher-income 12 months and wish to maximize your deductions.
Take motion
Assessment 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
For those who personal actual property by 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 earnings by as much as 20% of your certified enterprise earnings. Eligibility is dependent upon your earnings degree, so examine together with your CPA to see in the event you 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 may take advantage of it.
5. Shift Revenue to Your Youngsters
You probably have kids, you may cut back your tax burden by shifting earnings 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 earnings taxes.
You may pay your children to assist with duties in your actual property enterprise, equivalent to managing paperwork, advertising, or property upkeep. These wages are a deductible enterprise expense, which lowers your taxable earnings.
Bonus: For those who 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 underneath 18. It’s also possible to contribute their earned earnings 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
You probably have a high-deductible well being plan (HDHP), contributing to a well being financial savings account (HSA) is a easy but highly effective approach to cut back your taxable earnings. HSAs supply triple tax advantages:
- Contributions are tax-deductible.
- Earnings develop tax-free.
- Withdrawals for certified medical bills are additionally tax-free.
For 2024, you may 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. It’s also possible to 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 earnings for this 12 months.
7. Max Out Your FSA Contributions
Contributing to a versatile spending account (FSA) is one other approach to save on taxes. FSAs assist you to put aside pre-tax {dollars} for certified bills.
There are two major 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 may 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’t contribute to each a well being financial savings account (HSA) and a medical FSA in the identical 12 months in the event you are utilizing a high-deductible well being plan (HDHP). Nevertheless, you should utilize 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 underneath age 13, a partner with disabilities, or an aged mum or dad, together with daycare, preschool, or in-home care.
- Can You Contribute to Each? Sure, you may contribute to each a medical FSA and a dependent care FSA in the identical 12 months, as they cowl various kinds of bills and have separate contribution limits.
Essential guidelines
FSAs function underneath a “use-it-or-lose-it” rule, that means any unused funds on the finish of the 12 months could also be forfeited, except your plan provides a grace interval or a restricted rollover. You’ll want 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. For those who’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 may harvest capital losses to offset positive aspects elsewhere in your portfolio. This helps cut back your general taxable earnings for the 12 months.
For those who 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, that means no taxable achieve. In case your losses exceed your positive aspects, you may offset as much as $3,000 of odd earnings and carry over any remaining losses to future years.
Take motion
Assessment your portfolio for underperforming investments you may promote earlier than Dec. 31 to learn from this technique.
9. Speak to Your Accountant About Tax Credit
Tax credit immediately cut back how a lot you owe in taxes, making them notably useful for mid-income traders. Listed below are some key credit to think about:
- Youngster Tax Credit score: You probably have kids, this credit score can cut back your tax legal responsibility by as much as $2,000 per qualifying youngster.
- Saver’s Credit score: For those who contribute to a retirement plan, equivalent to an IRA or 401(ok), and your earnings falls under sure limits, you could be eligible for the Saver’s Credit score. This offers 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: For those who or your dependents are paying for faculty, this credit score may give you as much as $2,500 per 12 months for eligible schooling bills.
These credit are sometimes probably the most related for mid-income earners, as they apply to widespread life conditions like elevating kids, saving for retirement, or paying for schooling.
Extra credit to think about
Whereas these credit are tailor-made to typical mid-income tax conditions, you would possibly nonetheless profit from these further credit, particularly in the event you’re making bigger investments:
- Residential Power Credit score: For those who’ve put in renewable vitality programs equivalent to photo voltaic panels or wind generators in your property, this credit score may help decrease your tax invoice.
- Electrical Car (EV) Credit score: For those who bought an electrical automobile this 12 months, you possibly 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 assist you to defer or cut back capital positive aspects taxes, making this a helpful credit score in the event you’re concerned in bigger actual property or enterprise improvement initiatives.
Take motion
Work together with your CPA to determine 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 present again and cut back your taxes on the similar time. You may donate money or appreciated property, equivalent to shares or actual property, and obtain a tax deduction primarily based 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 you must pursue first, contributing to a person retirement account (IRA) is a viable approach to cut back your tax legal responsibility. Contributions to a standard IRA are tax-deductible, which lowers your taxable earnings for the 12 months. Nevertheless, it’s necessary to do not forget that this technique defers your earnings, locking it up in a government-controlled belief account till retirement.
For 2024, you may contribute as much as $6,500 to an IRA (or $7,500 in the event you’re 50 or older). You might also wish to contemplate a Roth IRA, which doesn’t present an instantaneous 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 earnings till retirement matches into your general monetary technique.
Take motion
If contributing to an IRA matches your long-term objectives, make sure you make your contributions by the tax submitting deadline to cut back your taxable earnings for 2024.
Closing Ideas
By implementing these end-of-year tax methods, you may 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 think about 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—converse together with your CPA, assessment your choices, and make the correct strikes to make sure you’re taking full benefit of all accessible tax financial savings. By being proactive, you’ll not solely decrease your taxes now but in addition lay the groundwork for smarter monetary selections and stronger wealth-building sooner or later.
Notice By BiggerPockets: These are opinions written by the creator and don’t essentially characterize the opinions of BiggerPockets.
