For actual property buyers, the finish of the 12 months isn’t nearly closing offers—it’s about making good strikes that might prevent 1000’s in your tax invoice. For those who 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 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 buyers, you could make earlier than year-end.
1. Take Benefit of Accelerated Depreciation
Depreciation is without doubt one of the largest tax benefits actual property buyers have. For those who personal a rental property and haven’t achieved a price segregation (price seg) examine, now’s a very good time to think about it. A price seg examine breaks down your property into elements (like home equipment or fixtures) that may be depreciated quicker, resulting in bigger tax deductions within the early years of possession.
Even when 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 possibly can nonetheless profit by investing in actual property offers that plan to do a price seg examine. If the deal closes by the top of the 12 months, you may make the most of the accelerated depreciation.
Take motion
Discuss to your CPA about beginning a price seg examine or discover actual property fairness offers that can shut earlier than the 12 months ends.
2. Execute a 1031 Alternate
For those who’re promoting a property this 12 months, a 1031 alternate allows you to defer capital positive aspects taxes by reinvesting the sale proceeds into one other property. This can assist you keep away from a big tax invoice and preserve your cash working for you in a brand new funding.
Let’s say you promote a rental property for a $100,000 acquire. With out a 1031 alternate, you could possibly be going through as much as $20,000 in capital positive aspects taxes. By reinvesting in one other property by a 1031 alternate, you may defer these taxes and preserve 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 straightforward option to scale back your taxable revenue is to prepay bills on your rental property. Paying property taxes, insurance coverage premiums or making vital repairs earlier than the 12 months ends permits you to declare these deductions for 2024. This technique is particularly helpful when you’ve had a higher-income 12 months and wish to maximize your deductions.
Take motion
Overview 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 an LLC, S-Corp, and even as a sole proprietor, it’s possible you’ll 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 determined by your revenue degree, so test along with your CPA to see when you 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 may benefit from it.
5. Shift Earnings to Your Kids
When you’ve got youngsters, you may scale back your tax burden by shifting revenue to them, particularly in the event that they’re in a decrease tax bracket. For 2024, youngsters can earn as much as $14,000 with out paying federal revenue taxes.
You possibly can pay your youngsters to assist with duties in your actual property enterprise, corresponding to managing paperwork, advertising and marketing, 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 must pay Social Safety and Medicare (FICA) taxes on wages paid to youngsters underneath 18. You too can contribute their earned revenue to a Roth IRA to jump-start on retirement financial savings.
Take motion
Set up a system to pay your youngsters 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
When you’ve got a high-deductible well being plan (HDHP), contributing to a well being financial savings account (HSA) is a easy but highly effective option to scale 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 may contribute as much as $4,150 as a person or $8,300 as a household, with an extra $1,000 catch-up contribution for these 55 and older. You too can 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 option to save on taxes. FSAs let you put aside pre-tax {dollars} for certified bills.
There are two most important sorts: 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 not contribute to each a well being financial savings account (HSA) and a medical FSA in the identical 12 months when you 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 underneath age 13, a partner with disabilities, or an aged guardian, 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.
Vital 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, until your plan presents a grace interval or a restricted rollover. You’ll want to overview 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 typical 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 scale back your general taxable revenue for the 12 months.
For those who promote an asset at a $20,000 loss and have a $20,000 acquire from one other funding, your losses and positive aspects cancel one another out, that means no taxable acquire. In case your losses exceed your positive aspects, you may offset as much as $3,000 of odd revenue and carry over any remaining losses to future years.
Take motion
Overview your portfolio for underperforming investments you may promote earlier than Dec. 31 to learn from this technique.
9. Discuss to Your Accountant About Tax Credit
Tax credit immediately scale back how a lot you owe in taxes, making them notably priceless for mid-income buyers. Listed here are some key credit to think about:
- Little one Tax Credit score: When you’ve got youngsters, this credit score can scale 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, corresponding to an IRA or 401(okay), and your revenue 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: For those who or your dependents are paying for school, 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 frequent life conditions like elevating youngsters, 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 may nonetheless profit from these extra credit, particularly when you’re making bigger investments:
- Residential Vitality Credit score: For those who’ve put in renewable vitality techniques corresponding 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 could possibly 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 scale back capital positive aspects taxes, making this a helpful credit score when you’re concerned in bigger actual property or enterprise improvement tasks.
Take motion
Work along 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 an effective way to offer again and scale back your taxes on the identical time. You possibly can donate money or appreciated belongings, corresponding 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 you must pursue first, contributing to a person retirement account (IRA) is a viable option to scale back your tax legal responsibility. Contributions to a conventional IRA are tax-deductible, which lowers your taxable revenue for the 12 months. Nonetheless, it’s vital to keep in mind that this technique defers your revenue, 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 when you’re 50 or older). You may additionally 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 general monetary technique.
Take motion
If contributing to an IRA matches your long-term targets, be sure you 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 may considerably scale back your 2024 tax burden and preserve 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 along with your CPA, overview your choices, and make the correct strikes to make sure you’re taking full benefit of all out there tax financial savings. By being proactive, you’ll not solely decrease your taxes now but additionally lay the groundwork for smarter monetary choices and stronger wealth-building sooner or later.
Observe By BiggerPockets: These are opinions written by the writer and don’t essentially symbolize the opinions of BiggerPockets.
