{"id":104608,"date":"2019-12-15T09:00:56","date_gmt":"2019-12-15T16:00:56","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=104608"},"modified":"2021-03-16T14:51:35","modified_gmt":"2021-03-16T20:51:35","slug":"tax-strategies-year-end","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/tax-strategies-year-end","title":{"rendered":"4 Tax Strategies Smart Investors Consider Implementing at Year-End"},"content":{"rendered":"

Disclaimer: This article does not constitute legal advice. As always, consult your CPA or accountant before implementing any tax strategies to ensure that these methods fit with your particular situation.<\/em><\/p><\/blockquote>\n

With the new year right around the corner, most people are thinking about sipping spiked eggnog and what they are going to put under their trees. It\u2019s time to unwind, enjoy yourself, and welcome the new year with a bang!<\/p>\n

Smart real estate investors are also finalizing their tax strategies. They know that year-end is where you can make pretty significant moves should the situation warrant itself.<\/p>\n

Staying true to the holiday spirit of giving, I\u2019m going to give you ideas on last-minute tax moves you can make. But you had better act fast, as time is running out!<\/p>\n

1. Update your accounting records and project your total income.<\/h2>\n

If you read my blogs<\/a>, you have heard my advice about proper record keeping and being up-to-date in your accounting. It\u2019s so important that I decided to list it first in our year-end tax strategies.<\/p>\n

By now, you should have your accounting records per property caught up through the end of November. If that\u2019s not you, stop reading now and grab a bottle of wine, put Christmas tunes on, and get your accounting records caught up.<\/p>\n

When clients come to us with great accounting records, we can quite easily help show them what year-end tax strategies make the most sense. Without great accounting records, we can\u2019t project income and are merely playing a guessing game.<\/p>\n

I don\u2019t like playing guessing games. I like to estimate income and expenses as accurately as possible so that I can make year-end moves necessary to reduce my income to the desired amount.<\/p>\n

Many of our clients know what their tax situation looks like, with about a 98% confidence score, by the first week of December. Accurate accounting records make it easy for a CPA to plug numbers into their tax software and spit out an estimate. We can view the result and easily apply different tax strategies to the pro forma tax return. And then we can pick and choose which strategies we want to pursue.<\/p>\n

Talk about flexibility! Knowing what your tax position is before the year is even over is an amazing benefit that your CPA can offer. But your CPA cannot help you if you don\u2019t first help yourself.<\/p>\n

\"tax-changes\"<\/p>\n

2. Decide on a cost segregation study and whether 100% bonus depreciation makes sense.<\/h2>\n

If you know, with a 98% confidence score, what your tax position is going to be, you can easily look at new purchases you made in 2019 to determine if a cost segregation study is going to make sense.
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\nRelated:<\/strong> How to Use Flexibility to Dramatically Reduce (or Even Eliminate) Your Tax Bill<\/a><\/em><\/p>\n

A cost segregation study<\/a> will allow you to accelerate depreciation on your rental properties. The study will allocate the purchase price of the property between 5, 7, 15, and 27.5-year property. As a result, you will be able to depreciate a portion of your property over a shorter life, which results in a higher depreciation expense in the initial years.<\/p>\n

Cost segregation studies help immensely when you have large amounts of passive income from your real estate that you need to shelter. They also help when one spouse can qualify as a real estate professional for tax purposes.<\/p>\n

Cost segregation studies often cost between $4,000 to $7,000 but will generally produce significant tax savings in the initial years.<\/p>\n

And with the 2018 tax law changes, cost segregation studies became so much sweeter. Now you can 100% bonus depreciate any property with a useful life of fewer than 20 years. That means you can fully write-off the 5, 7, and 15-year property identified by the cost segregation study in the year you purchase a rental.<\/p>\n

As an example, let\u2019s say you purchase a $1MM multifamily property. Your cost segregation study may yield the following results:<\/p>\n