Year-End Tax Planning for Real Estate businesses
Alice Kaneyia, CPA
We help real estate businesses and investors in Florida save thousands in taxes, and grow with outsourced accounting, advisory & tax services.
?As we approach the end of 2024, year-end tax planning becomes a critical exercise for real estate professionals and investors. With tax laws constantly evolving, it’s essential to stay updated and make the most of available deductions, credits, and planning opportunities to reduce your tax liability and set yourself up for success in 2025. In this article, we’ll explore key strategies tailored specifically for real estate professionals, utilizing up-to-date tax rules and SEO-driven insights.?
?1. Maximizing Real Estate Deductions
One of the most significant advantages of real estate investing is the variety of deductions available. Ensure you maximize the following key deductions before year-end:?
?? Mortgage Interest: Mortgage interest is often one of the largest deductions available to real estate investors. Ensure that interest paid on loans for properties used in your real estate business is properly recorded and deducted on Schedule E.?
Depreciation: Residential real estate is depreciated over 27.5 years, while commercial property is depreciated over 39 years. Ensure you claim full depreciation for each property. If you’ve missed depreciation in past years, consider filing IRS Form 3115 to correct depreciation errors without needing to amend prior tax returns.?
?? Repairs vs. Improvements: Knowing the difference between repairs (deductible expenses) and improvements (capitalized and depreciated) is essential. Minor repairs, such as fixing a leaky faucet, can be deducted in the year they are incurred, while major improvements, like installing a new roof, must be capitalized.?
?2. Take Advantage of 1031 Exchanges
If you’re considering selling a rental property, explore a 1031 like-kind exchange. This strategy allows you to defer capital gains taxes by reinvesting the proceeds from the sale into another similar investment property. Key SEO keywords: 1031 Exchange 2024, defer capital gains, real estate tax strategies.?
领英推荐
?3. Maximize Retirement Contributions
As a real estate professional, consider contributing to tax-deferred retirement accounts, such as a Self-Employed 401(k) or a SEP IRA. For 2024, the contribution limits are:?
?? 401(k): $23,000 (with an additional $7,500 catch-up contribution if you’re 50 or older).?
?? IRA: $7,000 (with an additional $1,000 catch-up contribution for individuals 50+). By maximizing these contributions, you not only reduce your taxable income but also grow your retirement savings. ?
?4. Harvest Capital Losses
With the stock market and real estate markets fluctuating, it’s a good idea to consider tax-loss harvesting. This strategy involves selling underperforming assets to offset gains in other investments, thereby reducing your overall taxable income. You can use capital losses to offset up to $3,000 in ordinary income annually, with the remaining losses carried forward to future years. Keywords: tax-loss harvesting real estate, capital gains planning, year-end tax strategies 2024.?
?5. Qualified Business Income (QBI) Deduction
If you’re structured as a pass-through entity (like an LLC, S-Corp, or partnership), don’t forget to take advantage of the 20% Qualified Business Income (QBI) deduction. Real estate businesses often qualify for this deduction, though it is subject to income limits and other qualifications. Keywords: QBI deduction for real estate, pass-through entity tax benefits, 2024 tax deductions for LLCs.?
?6. Review Entity Structure
Year-end is an excellent time to review your business entity structure. Depending on your real estate activities, restructuring your business as an S-Corp, C-Corp, or LLC may provide additional tax benefits, such as reduced self-employment taxes or more favorable treatment of passive income. Keywords: real estate entity tax strategies, LLC vs. S-Corp, entity structure tax planning 2024.