Prepaying expenses before year-end can accelerate tax deductions for real estate investors.
Timing property sales strategically can optimize tax benefits for investors.
Utilizing cost segregation and bonus depreciation can significantly benefit real estate investors by accelerating depreciation expense.
Deep dives
Last-Minute Tax Planning for a Better Financial Year
In this podcast episode, the hosts discuss last-minute tax planning strategies for real estate investors in the final months of the year. They emphasize the importance of proactive planning and highlight various strategies to reduce tax liabilities and maximize savings. These strategies include contributing to retirement accounts, utilizing health savings accounts (HSAs), prepaying expenses, and leveraging syndications. The hosts also explain the benefits of cost segregation studies, cash-out refinancing, and timing property sales for optimal tax benefits. They stress the value of working with a knowledgeable tax advisor to ensure proper implementation of these strategies.
The Power of Prepaying Expenses and Timing Property Sales
One key strategy discussed in the podcast episode is prepaying expenses before year-end to accelerate tax deductions. By prepaying rental-related expenses for the following year, investors can claim the deductions in the current year, thereby reducing their taxable income. The hosts also highlight the importance of timing property sales to optimize tax benefits. By strategically delaying property sales until the following year, investors gain an entire year to plan for offsetting any potential tax liabilities. They encourage incentivizing buyers to agree to a delayed closing to unlock these tax advantages.
Understanding Write-Offs and Tax Deductions for Real Estate Investors
The podcast episode emphasizes the significance of understanding write-offs and tax deductions for real estate investors. They explain that write-offs are available for expenses that are ordinary and necessary to carry on as a real estate investor. While the specific expenses that qualify may vary based on individual circumstances, the hosts suggest asking whether an expense is ordinary and necessary before deciding to claim it as a tax deduction. They also underscore the importance of consulting with a tax advisor to determine the eligibility of specific expenses and to explore creative possibilities for legitimate deductions.
The Benefits of Cost Segregation and Bonus Depreciation
Cost segregation and bonus depreciation can significantly benefit real estate investors by accelerating depreciation expense. Cost segregation involves identifying certain components of a building that can be classified as personal property or land improvements, allowing for faster depreciation write-offs. By utilizing cost segregation and bonus depreciation, investors can depreciate 80% of five-year and 15-year assets immediately, rather than over a longer period. This strategy allows for higher depreciation upfront, which can be used to reinvest and increase cash flow.
The Short-Term Rental Loophole and Tax Savings
The short-term rental loophole is an effective strategy for high-income earners who are real estate investors on the side. By materially participating in the management of their short-term rentals, investors can access cost segregation and bonus depreciation benefits, resulting in significant tax savings. This loophole allows investors to offset W-2 income, sometimes up to $3-4 million, with rental losses. It is crucial for real estate investors to understand the tax component and total ROI of their investments, as well as take advantage of deductions related to business travel and other overhead costs.
If you want to pay fewer taxes or outright avoid taxes in 2024, you’re in the right place. We’re about to give you all the last-chance tax tips and loopholes you can use NOW to pay WAY less in taxes in 2024. All of these are perfectly legal, but many will require some form of real estate investing. Don’t own any rental property yet? Not a problem! You can STILL start planning to pay lower taxes BEFORE you buy!
We brought back our two favorite tax experts, Amanda Han and Matt MacFarland, on to the show to share all the last-minute tax tips YOU can use to pay Uncle Sam less and keep more in your pocket. Plus, Amanda and Matt share a tax “loophole” that anyone who makes under $100K per year OR owns a short-term rental property can use to save thousands, if not tens of thousands, in taxes.
We’ll also get into common ways anyone can reduce their taxes through retirement account contributions, charitable donations, and more. Plus, the common misconception costing you thousands of dollars in write-offs that you never knew you could take!
In This Episode We Cover
The one rental property “loophole” that allows you to take a MASSIVE deduction
A huge real estate write-off any investor who makes under $100K is able to take
Retirement investing and how boosting your nest egg can dramatically lower your taxes
