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. In case you don’t plan forward, you may miss out on important tax advantages that would 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 can 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. In case you personal a rental property and haven’t accomplished 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 should 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 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 12 months, you’ll be able to 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 may shut earlier than the 12 months ends.
2. Execute a 1031 Change
In case you’re promoting a property this 12 months, a 1031 trade allows you to defer capital beneficial properties 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 no 1031 trade, you would be going through as much as $20,000 in capital beneficial properties taxes. By reinvesting in one other property by way of a 1031 trade, you’ll be able to defer these taxes and preserve that $20,000 working for you in a brand new funding.
To qualify, you will need to determine a substitute property inside 45 days and shut inside 180 days.
Take motion
Discuss to your CPA about whether or not a 1031 trade is proper for you earlier than promoting your property.
3. Prepay Bills
A simple method to scale back your taxable earnings is to prepay bills to your rental property. Paying property taxes, insurance coverage premiums or making obligatory repairs earlier than the 12 months ends lets you declare these deductions for 2024. This technique is particularly helpful should you’ve had a higher-income 12 months and need 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
In case you personal actual property by way of an LLC, S-Corp, and even as a sole proprietor, you might qualify for the Certified Enterprise Earnings (QBI) deduction. This deduction lets you scale back your taxable earnings by as much as 20% of your certified enterprise earnings. Eligibility will depend on your earnings stage, so verify along with your CPA to see should 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’ll be able to take advantage of it.
5. Shift Earnings to Your Kids
When you have kids, you’ll be able to 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, equivalent to managing paperwork, advertising and marketing, or property upkeep. These wages are a deductible enterprise expense, which lowers your taxable earnings.
Bonus: In case you 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 may as well 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
When 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 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’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 earnings 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 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’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 should 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 beneath age 13, a partner with disabilities, or an aged father or mother, 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 beneath 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 gives a grace interval or a restricted rollover. Be sure you 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. In case you’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’ll be able to harvest capital losses to offset beneficial properties elsewhere in your portfolio. This helps scale back your total taxable earnings for the 12 months.
In case you promote an asset at a $20,000 loss and have a $20,000 acquire from one other funding, your losses and beneficial properties cancel one another out, that means no taxable acquire. In case your losses exceed your beneficial properties, you’ll be able to offset as much as $3,000 of atypical earnings and carry over any remaining losses to future years.
Take motion
Overview 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 instantly scale back how a lot you owe in taxes, making them significantly priceless for mid-income buyers. Listed below are some key credit to think about:
- Youngster Tax Credit score: When you 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: In case you contribute to a retirement plan, equivalent to an IRA or 401(okay), and your earnings falls under sure limits, you might 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: In case you or your dependents are paying for school, this credit score can provide 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.
Extra 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 should you’re making bigger investments:
- Residential Vitality Credit score: In case you’ve put in renewable vitality techniques 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: In case you bought an electrical car this 12 months, you would 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 beneficial properties taxes, making this a helpful credit score should you’re concerned in bigger actual property or enterprise improvement initiatives.
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 similar time. You possibly can donate money or appreciated belongings, 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 need to pursue first, contributing to a person retirement account (IRA) is a viable method to scale 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 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’ll be able to contribute as much as $6,500 to an IRA (or $7,500 should you’re 50 or older). You may additionally need to contemplate 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 price contemplating how locking up your earnings till retirement matches into your total monetary technique.
Take motion
If contributing to an IRA matches your long-term targets, you’ll want to make your contributions by the tax submitting deadline to cut back your taxable earnings for 2024.
Last Ideas
By implementing these end-of-year tax methods, you’ll be able to 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 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 precise 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 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 characterize the opinions of BiggerPockets.
