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10 End of Year Tax Planning Tips for Real Estate Investors

As the year draws to a close, it’s a pivotal time for real estate investors in the Willamette Valley, including Corvallis, Albany, Lebanon, and Philomath. While tax planning is an essential aspect of maximizing your investment returns, Sue, Ryan, and our team are here to focus on your real estate needs. From implementing transactions to connecting you with tax professionals, we’re dedicated to supporting your real estate journey. Here are key strategies to consider as you prepare for the end of the tax year.

1. Maximize Your Deductions

Real estate investors can leverage various deductions to reduce taxable income. These include mortgage interest, property taxes, operating expenses, insurance, and repair costs. Keeping detailed records of these expenses is crucial.

2. Leverage Depreciation

Depreciation is a key tax benefit, allowing investors to deduct the costs of buying and improving a rental property over its useful life, defined as 27.5 years for residential properties by the IRS. Properly calculating and claiming depreciation can substantially reduce your taxable income.

3. Consider a Cost Segregation Study

For larger investments (generally $1M+) or if you are a real estate professional, a cost segregation study can be beneficial. This study accelerates depreciation deductions by identifying and reclassifying personal property assets, increasing your upfront deductions. You should especially inquire with your tax professional about this as an option if you’ve purchased/put into service any properties since 2017, when the accelerated depreciation was bumped up to 100% for those personal property assets. Let us know if you’d like to connect with a engineer for a free analysis of approximate depreciation available on your properties.

4. Utilize the 1031 or 721 Exchange

A 1031 exchange is an excellent tool for deferring capital gains taxes when selling a property and reinvesting the proceeds into another properties. This strategy can be especially useful in dynamic markets like Corvallis and Philomath, allowing for portfolio upgrades without immediate tax implications. We are seeing clients choosing to sell homes locally and reinvesting as a 1031 into markets out-of-state with higher cash flows. Also, speak to Ryan about options to exchange into truly passive investments through DSTs or 721 exchanges for those wishing to “retire” and/or focus solely on income.

5. Portfolio Assessment

The end of the year is an ideal time for a comprehensive portfolio assessment. Evaluate the performance of each property and decide whether to sell, hold, or expand your holdings. Market trends in the Willamette Valley can influence these decisions. Let us know if you’d like us to help calculate your return on equity with a comprehensive real estate portfolio analysis.

6. Understand Passive Activity Loss Rules

Passive real estate investors should be aware of passive activity loss rules, which can limit deductible losses. However, if your income is below certain thresholds, you may be eligible to deduct a portion of these losses against other income.

7. Incorporate Real Estate into Retirement Planning

Real estate investments can play a significant role in retirement planning. Consider using vehicles like self-directed IRAs to invest in real estate, potentially benefiting from tax-free or tax-deferred growth.

8. Seek Professional Tax Advice

Given the complexity of real estate tax laws, consulting with a tax professional is advisable. A specialist familiar with the Willamette Valley market, including Corvallis and Albany, can offer tailored advice for your investment portfolio. Let us know if you’d like a recommendation.

9. Prepare for the Next Tax Year

Use the end of the current year to strategize for the next. Implement systems to track expenses and maintain records more efficiently. This foresight can significantly ease your tax preparation for the following year.

As we wrap up this year, remember that Sue, Ryan, and our experienced team are dedicated to supporting your real estate needs in the Willamette Valley. Whether you’re looking to buy, sell, or assess your current portfolio in the Mid Valley areas, we’re here to help facilitate your real estate transactions and connect you with the right tax professionals. Contact us today to discuss how we can assist with your real estate endeavors and set you up for success in the coming year. Let’s collaborate to maximize your real estate investments!

Ryan can be reached at by phone or by email


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