For real estate investors, the end of the year isn’t just about closing deals—it’s about making smart moves that could save you thousands on your tax bill. If you don’t plan ahead, you might miss out on critical tax benefits that could otherwise be reinvested into your portfolio.
You can take control by implementing a few simple strategies before Dec. 31 to ensure you’re minimizing your 2024 tax liability and setting yourself up for a stronger financial future. Here’s a guide to the most effective tax-saving moves, especially for mid-income investors, that you can make before year-end.
1. Take Advantage of Accelerated Depreciation
Depreciation is one of the biggest tax advantages real estate investors have. If you own a rental property and haven’t done a cost segregation (cost seg) study, now is a good time to consider it. A cost seg study breaks down your property into components (like appliances or fixtures) that can be depreciated faster, leading to larger tax deductions in the early years of ownership.
Even if you don’t finish the cost seg study by Dec. 31, closing on the property before year-end still qualifies you for these benefits when you file your 2024 return.
Don’t own property yet? You can still benefit by investing in real estate deals that plan to do a cost seg study. If the deal closes by the end of the year, you can take advantage of the accelerated depreciation.
Take action
Talk to your CPA about starting a cost seg study or explore real estate equity deals that will close before the year ends.
2. Execute a 1031 Exchange
If you’re selling a property this year, a 1031 exchange lets you defer capital gains taxes by reinvesting the sale proceeds into another property. This can help you avoid a large tax bill and keep your money working for you in a new investment.
Let’s say you sell a rental property for a $100,000 gain. Without a 1031 exchange, you could be facing up to $20,000 in capital gains taxes. By reinvesting in another property through a 1031 exchange, you can defer those taxes and keep that $20,000 working for you in a new investment.
To qualify, you must identify a replacement property within 45 days and close within 180 days.
Take action
Talk to your CPA about whether a 1031 exchange is right for you before selling your property.
3. Prepay Expenses
An easy way to reduce your taxable income is to prepay expenses for your rental property. Paying property taxes, insurance premiums or making necessary repairs before the year ends allows you to claim these deductions for 2024. This strategy is especially useful if you’ve had a higher-income year and want to maximize your deductions.
Take action
Review upcoming expenses, and prepay them before Dec. 31 to benefit from the deduction this year.
4. Use the Qualified Business Income (QBI) Deduction
If you own real estate through an LLC, S-Corp, or even as a sole proprietor, you may qualify for the Qualified Business Income (QBI) deduction. This deduction allows you to reduce your taxable income by up to 20% of your qualified business income. Eligibility depends on your income level, so check with your CPA to see if you qualify for this deduction.
Take action
Consult with your CPA about whether your real estate business qualifies for the QBI deduction and how you can make the most of it.
5. Shift Income to Your Children
If you have children, you can reduce your tax burden by shifting income to them, especially if they’re in a lower tax bracket. For 2024, children can earn up to $14,000 without paying federal income taxes.
You can pay your kids to help with tasks in your real estate business, such as managing paperwork, marketing, or property maintenance. These wages are a deductible business expense, which lowers your taxable income.
Bonus: If you own a sole proprietorship or single-member LLC, you don’t have to pay Social Security and Medicare (FICA) taxes on wages paid to children under 18. You can also contribute their earned income to a Roth IRA to jump-start on retirement savings.
Take action
Set up a system to pay your children for their work before year-end, and consult your CPA to ensure compliance with tax rules.
6. Maximize Your HSA Contributions
If you have a high-deductible health plan (HDHP), contributing to a health savings account (HSA) is a simple yet powerful way to reduce your taxable income. HSAs offer triple tax benefits:
- Contributions are tax-deductible.
- Earnings grow tax-free.
- Withdrawals for qualified medical expenses are also tax-free.
For 2024, you can contribute up to $4,150 as an individual or $8,300 as a family, with an additional $1,000 catch-up contribution for those 55 and older. You can also invest HSA funds, allowing them to grow tax-free over time.
Take action
Max out your HSA contributions by Dec. 31 to reduce your taxable income for this year.
7. Max Out Your FSA Contributions
Contributing to a flexible spending account (FSA) is another way to save on taxes. FSAs allow you to set aside pre-tax dollars for qualified expenses.
There are two main types: medical FSAs and dependent care FSAs. Here’s how they work and the contribution limits for each in 2024:
Medical FSAs
- Contribution Limit: For 2024, you can contribute up to $3,200 to a medical FSA.
- Eligible Expenses: Medical FSAs can be used for qualified medical expenses like doctor’s visits, prescriptions, dental work, vision care, and other healthcare-related expenses.
- Restrictions with HSA: You cannot contribute to both a health savings account (HSA) and a medical FSA in the same year if you are using a high-deductible health plan (HDHP). However, you can use a limited-purpose FSA (for dental and vision only) alongside an HSA.
Dependent care FSA (FSA DC)
- Contribution Limit: The contribution limit for dependent care FSA is $5,000 per household (or $2,500 if married filing separately).
- Eligible Expenses: Dependent care FSAs cover expenses related to the care of a child under age 13, a spouse with disabilities, or an elderly parent, including daycare, preschool, or in-home care.
- Can You Contribute to Both? Yes, you can contribute to both a medical FSA and a dependent care FSA in the same year, as they cover different types of expenses and have separate contribution limits.
Important rules
FSAs operate under a “use-it-or-lose-it” rule, meaning any unused funds at the end of the year may be forfeited, unless your plan offers a grace period or a limited rollover. Be sure to review your medical and dependent care needs for the remainder of the year and use any remaining FSA dollars.
Take action
Maximize your tax savings by reviewing both your medical and dependent care FSAs, ensuring you’ve contributed to and used them wisely before the year ends. If you’re considering contributing to an HSA, ensure you’re not contributing to a standard medical FSA to avoid eligibility conflicts.
8. Harvest Capital Losses
If any of your properties or other investments have lost value this year, you can harvest capital losses to offset gains elsewhere in your portfolio. This helps reduce your overall taxable income for the year.
If you sell an asset at a $20,000 loss and have a $20,000 gain from another investment, your losses and gains cancel each other out, meaning no taxable gain. If your losses exceed your gains, you can offset up to $3,000 of ordinary income and carry over any remaining losses to future years.
Take action
Review your portfolio for underperforming investments you can sell before Dec. 31 to benefit from this strategy.
9. Talk to Your Accountant About Tax Credits
Tax credits directly reduce how much you owe in taxes, making them particularly valuable for mid-income investors. Here are some key credits to consider:
- Child Tax Credit: If you have children, this credit can reduce your tax liability by up to $2,000 per qualifying child.
- Saver’s Credit: If you contribute to a retirement plan, such as an IRA or 401(k), and your income falls below certain limits, you may be eligible for the Saver’s Credit. This provides up to $1,000 (or $2,000 for married couples filing jointly) as a direct credit to your taxes.
- American Opportunity Tax Credit: If you or your dependents are paying for college, this credit can give you up to $2,500 per year for eligible education expenses.
These credits are often the most relevant for mid-income earners, as they apply to common life situations like raising children, saving for retirement, or paying for education.
Additional credits to consider
While these credits are tailored to typical mid-income tax situations, you might still benefit from these additional credits, especially if you’re making larger investments:
- Residential Energy Credit: If you’ve installed renewable energy systems such as solar panels or wind turbines on your property, this credit can help lower your tax bill.
- Electric Vehicle (EV) Credit: If you purchased an electric vehicle this year, you could qualify for up to $7,500 for a new EV or $4,000 for a used EV.
- Opportunity Zone Credit: Investing in opportunity zones can allow you to defer or reduce capital gains taxes, making this a useful credit if you’re involved in larger real estate or business development projects.
Take action
Work with your CPA to identify which credits apply to your situation and ensure you’re maximizing your tax savings for 2024.
10. Charitable Donations
Donating to a qualified charity is a great way to give back and reduce your taxes at the same time. You can donate cash or appreciated assets, such as stocks or real estate, and receive a tax deduction based on the fair market value of the asset.
Take action
Make any charitable donations before Dec. 31 to get the tax deduction for this year.
11. Contribute to an IRA
While there are several strategies you should pursue first, contributing to an individual retirement account (IRA) is a viable way to reduce your tax liability. Contributions to a traditional IRA are tax-deductible, which lowers your taxable income for the year. However, it’s important to remember that this strategy defers your income, locking it up in a government-controlled trust account until retirement.
For 2024, you can contribute up to $6,500 to an IRA (or $7,500 if you’re 50 or older). You may also want to consider a Roth IRA, which doesn’t provide an immediate tax deduction but allows for tax-free withdrawals in retirement.
While this strategy can help reduce your tax burden, it’s worth considering how locking up your income until retirement fits into your overall financial strategy.
Take action
If contributing to an IRA fits your long-term goals, be sure to make your contributions by the tax filing deadline to reduce your taxable income for 2024.
Final Thoughts
By implementing these end-of-year tax strategies, you can significantly reduce your 2024 tax burden and keep more of your hard-earned money. Whether it’s taking advantage of accelerated depreciation, maximizing your HSA or FSA contributions, or contributing to an IRA, each step can make a meaningful difference in how much you owe. It’s also essential to consider how tax credits, charitable donations, and long-term investment strategies like 1031 exchanges can further enhance your financial position.
The key is to act before the Dec. 31 deadline. Don’t wait until it’s too late—speak with your CPA, review your options, and make the right moves to ensure you’re taking full advantage of all available tax savings. By being proactive, you’ll not only lower your taxes now but also lay the groundwork for smarter financial decisions and stronger wealth-building in the future.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
English (US) · 