For actual property buyers, the finish of the 12 months isn’t nearly closing offers—it’s about making sensible strikes that would prevent 1000’s in your tax invoice. For those who don’t plan forward, you would possibly miss out on crucial tax advantages that would in any other case be reinvested into your portfolio.
You’ll be able to 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 simplest tax-saving strikes, particularly for mid-income buyers, that you may make earlier than year-end.
1. Take Benefit of Accelerated Depreciation
Depreciation is without doubt one of the greatest tax benefits actual property buyers have. For those who personal a rental property and haven’t finished a cost segregation (cost seg) study, now could be an excellent time to think about it. A value 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 in case you 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’ll be able to 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’ll be able to benefit from 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 exchange enables you to defer capital gains taxes by reinvesting the sale proceeds into one other property. This can assist 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 alternate, you might be going through as much as $20,000 in capital positive factors taxes. By reinvesting in one other property by means of a 1031 alternate, you’ll be able to defer these taxes and maintain that $20,000 working for you in a brand new funding.
To qualify, you have 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 alternate is proper for you earlier than promoting your property.
3. Prepay Bills
A simple method to scale back your taxable revenue is to prepay bills to your rental property. Paying property taxes, insurance coverage premiums or making crucial repairs earlier than the 12 months ends permits you to declare these deductions for 2024. This technique is particularly helpful in case you’ve had a higher-income 12 months and wish to maximize your deductions.
Take motion
Evaluate upcoming bills, and prepay them earlier than Dec. 31 to learn from the deduction this 12 months.
4. Use the Certified Enterprise Earnings (QBI) Deduction
For those who personal actual property by means of an LLC, S-Corp, and even as a sole proprietor, you might qualify for the Certified Enterprise Earnings (QBI) deduction. This deduction permits you to scale back your taxable revenue by as much as 20% of your certified enterprise revenue. Eligibility is dependent upon your revenue degree, so examine together with your CPA to see in case 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’ll be able to profit from it.
5. Shift Earnings to Your Youngsters
You probably have kids, you’ll be able to scale 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’ll be able to 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 revenue.
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 below 18. You can even 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
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 method to scale back your taxable revenue. 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’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 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 scale 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 can help 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 in case 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 below age 13, a partner with disabilities, or an aged dad or mum, 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 various kinds of bills and have separate contribution limits.
Necessary 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 provides a grace interval or a restricted rollover. Be sure you evaluate 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 an ordinary 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 factors elsewhere in your portfolio. This helps scale back your total taxable revenue 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 factors cancel one another out, which means no taxable achieve. In case your losses exceed your positive factors, you’ll be able to offset as much as $3,000 of strange revenue and carry over any remaining losses to future years.
Take motion
Evaluate your portfolio for underperforming investments you’ll be able to promote earlier than Dec. 31 to learn from this technique.
9. Speak to Your Accountant About Tax Credit
Tax credit instantly scale back how a lot you owe in taxes, making them notably beneficial for mid-income buyers. Listed here 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 little one.
- Saver’s Credit score: For those who contribute to a retirement plan, equivalent to an IRA or 401(ok), and your revenue falls under sure limits, you might 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 can provide you as much as $2,500 per 12 months for eligible training bills.
These credit are sometimes essentially the most related for mid-income earners, as they apply to frequent life conditions like elevating kids, saving for retirement, or paying for training.
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 case 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 can assist decrease your tax invoice.
- Electrical Automobile (EV) Credit score: For those who bought an electrical car this 12 months, you might 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 can help you defer or scale back capital positive factors taxes, making this a helpful credit score in case you’re concerned in bigger actual property or enterprise improvement tasks.
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 certified charity is a good way to offer again and scale back your taxes on the similar time. You’ll be able to 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 method to scale back your tax legal responsibility. Contributions to a conventional IRA are tax-deductible, which lowers your taxable revenue for the 12 months. Nevertheless, 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 in case you’re 50 or older). You might also wish to take into account a Roth IRA, which doesn’t present an instantaneous tax deduction however permits for tax-free withdrawals in retirement.
Whereas this technique can assist scale back your tax burden, it’s value contemplating how locking up your revenue till retirement matches into your total monetary technique.
Take motion
If contributing to an IRA matches your long-term objectives, make sure to make your contributions by the tax submitting deadline to scale back your taxable revenue for 2024.
Ultimate Ideas
By implementing these end-of-year tax methods, you’ll be able to considerably scale back your 2024 tax burden and maintain extra of your hard-earned cash. Whether or not it’s benefiting 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 hot button is to behave earlier than the Dec. 31 deadline. Don’t wait till it’s too late—communicate together with your CPA, evaluate your choices, and make the suitable 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 in addition 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 symbolize the opinions of BiggerPockets.
