Time to Start Year End Tax Planning

It’s that time of the year! Year-End Tax Planning is particularly important for real estate investors. A lot has happened this year in the real estate market and the general economy, which impacts the portfolio of many real estate investors in various ways. It’s not just about the value of the holdings we have, but also how we want to invest in the coming years, and even in our retirement. It also impacts the tax issues that will be confronting us in the upcoming tax filing season. We also need to prepare for tax planning with a view to economic trends in the coming year. Now is the prime time for investors to put tax-planning strategies into place that can help reduce their liability for 2025.

December 31 marks the cutoff date for delaying income, accelerating deductions, and gifting appreciated assets for the current filing year. Anytime from September through November, taxpayers should be thinking about year-end tax planning. To be able to plan, you have to know where you are.

End of Obama-Biden Tax Cuts
The advice is even more crucial this year for high-income earners, as many tax cuts introduced during the Obama administration have phased out, and additional changes under the Biden administration are now in effect for those in the highest tax brackets.

For 2025, married couples filing jointly with taxable income greater than $578,100 face a 37% top marginal income tax rate. This rate, introduced during the Obama years, has remained under President Biden. Additionally, high earners — individuals making over $414,000 or couples over $522,000 — may face a 20% rate on qualified dividends and long-term capital gains, up from the prior 15 percent.

Joint filers earning more than $263,000 are also subject to the 3.8 percent Medicare surtax on net investment income — a provision originally implemented through the Affordable Care Act.

Taxpayers looking to reduce their tax liability need to begin with a forecast and pay attention if their income level has changed. Generally speaking, if a taxpayer expects to be in the same or a lower tax bracket next year, it’s best to defer as much income as possible until after year-end. Strategies that work include deferring year-end bonuses until January 2026, delaying the exercise of incentive stock options, and postponing IRA distributions beyond the required minimum. Taxpayers should also consider accelerating deductions.

This can occur by using various strategies, including: using flexible spending accounts (FSAs) or health savings accounts (HSAs); maximizing pretax contributions to 401(k) plans (up to $25,500 for those under 50, and $33,000 for those over 50 in 2025); prepaying deductible mortgage interest, property taxes, and charitable contributions; making alimony payments early; and paying out-of-pocket medical expenses in December if deductible. Conversely, those likely to be in a higher tax bracket next year should accelerate income and defer deductions.

The Big Beautiful Bill: Key Tax Impacts for 2025

In addition to the standard tax changes and deduction adjustments, the Big Beautiful Bill has a significant impact on both individuals and businesses. Here are the major provisions:

For Real Estate Investors:

1. Extended Opportunity Zones Program:
The Opportunity Zones program is extended to 2033, with additional incentives for rural investments.

2. Permanent 100% Bonus Depreciation:
100% first-year bonus depreciation is made permanent through 2029 for qualified real estate properties, allowing investors to accelerate their deductions and reduce taxable income in the year the property is purchased.

3. SALT Deduction Cap Raised:
The SALT deduction cap for joint filers is raised to $40,000 for the 2025 tax year, helping taxpayers in high-tax states offset state and local taxes.

4. Low-Income Housing Tax Credit (LIHTC) Expansion:
The LIHTC allocation has increased, supporting affordable housing projects across the country, which could create more opportunities for real estate investors.

For Small Business Owners:

1. Permanent QBI Deduction:
The 23% Qualified Business Income (QBI) deduction for pass-through entities is made permanent, offering long-term tax relief for small businesses. Additionally, Section 179 expensing limits rise to $2.5 million, allowing businesses to expense more property and equipment.

2. Increased R&D Expense Deductions:
Small businesses can now immediately deduct R&D expenses, with businesses earning up to $25 million in gross receipts able to apply this retroactively from 2022.

3. Tax Incentives for Startups:
The Qualified Small Business Stock (QSBS) benefit is expanded, with an increased gross asset limit of $75 million, making it easier for more small businesses to qualify for favorable tax treatment.

For Individuals:

1. Higher Standard Deduction & Tax-Free Tips and Overtime:
The standard deduction is permanently increased, and tips (up to $25,000) and overtime pay (up to $12,500) are now tax-free for individuals earning under $150,000.

2. Expanded Child Tax Credit & Senior Relief:
The Child Tax Credit increases to $2,200 per child, and a new $6,000 senior deduction is available for individuals 65+ to reduce taxable income.

3. SALT Deduction Boost & Medicaid Cuts:
The SALT deduction cap rises to $40,000 for joint filers, but this benefit is temporary and expires in 2029. Meanwhile, up to 12 million people may lose Medicaid coverage due to new work requirements and funding cuts.

Capital Gains Planning

Investors can minimize their capital gains tax bite by selling stocks and mutual funds that have lost value before year-end. The IRS allows investors to offset capital gains with capital losses, dollar-for-dollar.

Any excess capital loss can be used to offset other income, up to $3,000 per year. Unused losses can be carried forward indefinitely to offset future gains or income. If you’re planning to leave an estate to heirs, you can reduce or eliminate the tax bill this year by gifting appreciated stocks to someone in a lower tax bracket — such as a child. For example, a child in the 10% or 12% bracket may pay 0% on long-term capital gains, making this a savvy wealth-transfer strategy.

Charitable Donations

Donating appreciated property instead of cash to a qualified charity offers significant savings. You can deduct the property’s fair market value on the date of the gift and avoid capital gains tax on the appreciation.

For 2025, cash donations are deductible up to 60% of your Adjusted Gross Income (AGI), while donations of appreciated assets (like stocks) are generally limited to 30% of AGI. Always confirm with a tax professional that your donations qualify for deductions.

Pease Limitation

The Pease Limitation—originally introduced in the early 1990s and reactivated through both the Obama and Biden administrations—continues to reduce the value of itemized deductions for high-income earners. For 2025, this limitation impacts married couples filing jointly with AGI over $372,000 and single filers with AGI over $278,000. It phases out deductions like mortgage interest, state/local taxes, and charitable contributions, reducing their overall benefit.

Recent Questions from My Blog…

Q: “I was wondering what the tax difference is between selling a home before owning it for one year or after owning it for a year. Is there a set tax percentage rate for both?”

A: The main difference, if it is a property held for investment, is that short-term capital gains are taxed at your ordinary income tax rate, which can range from 10% to 37%. Long-term Capital gains, on the other hand, are taxed at preferential rates of 0%, 15%, or 20%, depending on your income. However, if this is a rehab or “flip” property (i.e., not held for investment but for resale), the holding period doesn’t matter — profits are treated as business income and are subject to self-employment tax and ordinary income tax.

Q: “I just bought an SFH through my LLC, and I’m still not sure if I’m going to flip it or rent it. One thing weighing on my decision is taxes. If a single-member LLC owns a property, rehabs it, and sells it, are the profits deemed business income or capital gains?”

A: Business income is subject to self-employment taxes. If your LLC is a pass-through entity, the income is reported on your personal return and follows the same tax rules. Flipping properties through an LLC generally results in ordinary income, not capital gains. If you plan to rent it, the tax treatment may differ — and long-term rental activity can generate depreciation and other deductible expenses.

I address many of these issues in my Wealth Building Plan. Make sure you are getting the best tax advice. Let me evaluate your financial and tax situation, then develop a customized tax strategy just for you. Together, we will come up with a strategic plan designed to answer your questions as you build your own customized wealth-building plan. Contact us for more information at 1.888.502.3767