For actual property buyers, the finish of the yr isn’t nearly closing offers—it’s about making sensible strikes that might prevent 1000’s in your tax invoice. If you happen to don’t plan forward, you may 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 buyers, that you would be able to make earlier than year-end.
1. Take Benefit of Accelerated Depreciation
Depreciation is among the largest tax benefits actual property buyers have. If you happen to personal a rental property and haven’t carried out a price segregation (price seg) examine, now could be time to think about it. A price seg examine breaks down your property into elements (like home equipment or fixtures) that may be depreciated sooner, resulting in bigger tax deductions within the early years of possession.
Even if you happen to don’t end the price 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 possibly can nonetheless profit by investing in actual property offers that plan to do a value seg examine. If the deal closes by the top of the yr, you possibly can make the most of the accelerated depreciation.
Take motion
Discuss to your CPA about beginning a value seg examine or discover actual property fairness offers that can shut earlier than the yr ends.
2. Execute a 1031 Alternate
If you happen to’re promoting a property this yr, a 1031 alternate helps you to defer capital beneficial properties 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 out a 1031 alternate, you may be going through as much as $20,000 in capital beneficial properties taxes. By reinvesting in one other property by way of a 1031 alternate, you possibly can defer these taxes and maintain that $20,000 working for you in a brand new funding.
To qualify, you need to determine a alternative property inside 45 days and shut inside 180 days.
Take motion
Discuss to your CPA about whether or not a 1031 alternate is proper for you earlier than promoting your property.
3. Prepay Bills
A simple strategy to scale back your taxable earnings is to prepay bills on your rental property. Paying property taxes, insurance coverage premiums or making crucial repairs earlier than the yr ends means that you can declare these deductions for 2024. This technique is particularly helpful if you happen to’ve had a higher-income yr and wish to maximize your deductions.
Take motion
Overview upcoming bills, and prepay them earlier than Dec. 31 to profit from the deduction this yr.
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, it’s possible you’ll qualify for the Certified Enterprise Revenue (QBI) deduction. This deduction means that you can scale back your taxable earnings by as much as 20% of your certified enterprise earnings. Eligibility depends upon your earnings degree, so test along with your CPA to see if you happen to qualify for this deduction.
Take motion
Seek the advice of along with your CPA about whether or not your actual property enterprise qualifies for the QBI deduction and the way you possibly can profit from it.
5. Shift Revenue to Your Youngsters
You probably have kids, you possibly can scale 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 possibly can pay your children to assist with duties in your actual property enterprise, similar to managing paperwork, advertising and marketing, or property upkeep. These wages are a deductible enterprise expense, which lowers your taxable earnings.
Bonus: If you happen to personal a sole proprietorship or single-member LLC, you don’t must pay Social Safety and Medicare (FICA) taxes on wages paid to kids beneath 18. You can even 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 strategy to scale 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 possibly can 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 can even 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 yr.
7. Max Out Your FSA Contributions
Contributing to a versatile spending account (FSA) is one other strategy to save on taxes. FSAs will let you put aside pre-tax {dollars} for certified bills.
There are two predominant 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 possibly can 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 yr if you happen to 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 beneath 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 possibly can contribute to each a medical FSA and a dependent care FSA in the identical yr, as they cowl several types of bills and have separate contribution limits.
Vital guidelines
FSAs function beneath a “use-it-or-lose-it” rule, which means any unused funds on the finish of the yr could also be forfeited, except your plan presents a grace interval or a restricted rollover. Make sure you overview your medical and dependent care wants for the rest of the yr 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 yr 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 yr, you possibly can harvest capital losses to offset beneficial properties elsewhere in your portfolio. This helps scale back your general taxable earnings for the yr.
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 beneficial properties cancel one another out, which means no taxable achieve. In case your losses exceed your beneficial properties, you possibly can offset as much as $3,000 of peculiar earnings and carry over any remaining losses to future years.
Take motion
Overview your portfolio for underperforming investments you possibly can promote earlier than Dec. 31 to profit from this technique.
9. Discuss to Your Accountant About Tax Credit
Tax credit straight scale back how a lot you owe in taxes, making them significantly precious for mid-income buyers. Listed below are some key credit to think about:
- Youngster Tax Credit score: You probably have kids, this credit score can scale back your tax legal responsibility by as much as $2,000 per qualifying youngster.
- Saver’s Credit score: If you happen to contribute to a retirement plan, similar to an IRA or 401(ok), and your earnings falls beneath sure limits, it’s possible you’ll be eligible for the Saver’s Credit score. This gives 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 yr for eligible schooling bills.
These credit are sometimes essentially the most related for mid-income earners, as they apply to widespread life conditions like elevating kids, saving for retirement, or paying for schooling.
Further credit to think about
Whereas these credit are tailor-made to typical mid-income tax conditions, you may nonetheless profit from these further credit, particularly if you happen to’re making bigger investments:
- Residential Power Credit score: If you happen to’ve put in renewable vitality programs similar 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 automobile this yr, you may 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 will let you defer or scale back capital beneficial properties taxes, making this a helpful credit score if you happen to’re concerned in bigger actual property or enterprise growth initiatives.
Take motion
Work along with your CPA to determine which credit apply to your state of affairs and make sure you’re maximizing your tax financial savings for 2024.
10. Charitable Donations
Donating to a professional charity is a good way to offer again and scale back your taxes on the identical time. You possibly can donate money or appreciated belongings, similar 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 yr.
11. Contribute to an IRA
Whereas there are a number of methods you need to pursue first, contributing to a person retirement account (IRA) is a viable strategy to scale back your tax legal responsibility. Contributions to a standard IRA are tax-deductible, which lowers your taxable earnings for the yr. Nevertheless, it’s essential to do not forget that this technique defers your earnings, locking it up in a government-controlled belief account till retirement.
For 2024, you possibly can contribute as much as $6,500 to an IRA (or $7,500 if you happen to’re 50 or older). You might also wish to contemplate a Roth IRA, which doesn’t present a direct tax deduction however permits for tax-free withdrawals in retirement.
Whereas this technique may help scale back your tax burden, it’s price 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 targets, make sure you make your contributions by the tax submitting deadline to cut back your taxable earnings for 2024.
Ultimate Ideas
By implementing these end-of-year tax methods, you possibly can considerably scale back your 2024 tax burden and maintain extra of your hard-earned cash. Whether or not it’s profiting from 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 along with your CPA, overview your choices, and make the fitting 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.
Word By BiggerPockets: These are opinions written by the writer and don’t essentially characterize the opinions of BiggerPockets.