End of year tax strategies?

Question

What are some good end of year tax deduction strategies (outside of increasing your 401lk contributions). I've read a lot of people will buy a property as an STR, put it into service then do a cost seg. I'm looking to offset rental income.

I can't take a passive loss against my W2 income. Would love to hear some advice.

Account Closed · Answer

If you are interested in STR, that is a great path to go down this year. You can use bonus deprecation to offset a significant chunk of your w2. I would like to emphasize that you should not invest for tax benefits alone, you should be investing in things that you like and understand before anything else. The tax benefit is the cherry on top!

Sean Graham · Answer

@Patrick Shep the STR Loophole is a great strategy. Do either you or your spouse qualify for REPS?

Cost segregation could potentially help you out. Suspended losses from cost segregation are released and can be used to offset ordinary (W2) income when a property is sold. Something to keep in mind. Happy to explain further.

Jason Malabute · Answer

Patrick, it’s great that you’re thinking about year-end tax strategies. To provide the best advice, we’d need a bit more information about your specific situation. However, here are a few general suggestions that might help:

Since you’re looking to offset rental income and don’t qualify as a real estate professional, one strategy could be to consider any capital improvements you’re planning in the near future. If there are items you need to replace and they are less than $2,500, you can take advantage of the de minimis safe harbor election, which allows you to deduct those costs in the current year rather than capitalizing them. As mentioned above by others, cost segregation is an option.

Additionally, contributing to your IRA is another option. For 2024, the contribution limits are $7,000 if you’re under 50 and $8,000 if you’re 50 or older. This could help reduce your taxable income, depending on your eligibility.

If you’re itemizing deductions, consider making charitable donations as well. With the holiday season approaching, a significant donation to your favorite non-profit or church could provide a tax deduction while supporting a cause you care about.

Ultimately, the right strategies really depend on your overall situation, and we’d need more details to offer more specific advice. But these are a few options to consider as you plan for the end of the year.

Bill Hampton · Answer

@Patrick Shep

You should by a property for cash flow or appreciation. Never by a property for tax deductions.

You should work with an accountant or financial advisor that is familiar with your specific situation for tax deductions and tax planning.

I recommend finding an accountant who specializes in real estate taxation and tax planning.

You may want to consider working with your accountant remotely to expand your options.

I would also recommend looking for a accountant willing to work with you throughout the year. You want an accountant who can help you strategize and who is responsive when you want to know the consequences of the financial decisions you are making throughout the year.

There are over 20 real estate accountants on this site. Reach out to a few and see who you like.

You can also ask members of your local real estate investors association for real estate accountant recommendations.

Good luck.

Adam Michael Andrews · Answer

Pull forward some capex. For example, do you have water heaters that are going to fail and flood your place because they are 20 years old? Or if you have crazy old paint that really should be redone anyways. Maybe you always felt a fence would increase your market rents.

Trick with this is you want to only do things that truly permanently improve the property value.

Ashish Acharya · Answer

Here are some quick end-of-year tax strategies to offset rental income:

• Cost Segregation: Buy a short-term rental (STR), put it into service, and use cost segregation to accelerate depreciation.
• Prepay Expenses: Pay for repairs and insurance now to deduct this year.
• Defer Income: Delay rent until next year to lower this year’s taxable income.
• Maximize Deductions: Deduct property taxes, mortgage interest, and insurance.
• Charitable Donations: Donate before year-end to reduce taxable income.

These won’t offset W-2 income but will help reduce rental taxes. There are also many others, such as hiring kids. It depends on your personal situation.

End of year tax strategies?

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