Year-End Tax Tips for Real Estate Investors

If you are a residential real estate investor—whether you bought/sold one property this year or you are holding multiple units—you have to be careful with your tax planning. The wrong moves or lack of organization can be costly when it comes time to submit your tax return. The right tax strategies and legal deductions can reduce your taxable income significantly and thus increase your return (or at least reduce the amount if you still owe taxes).

The year is almost over, but it’s not too late to take care of some strategic year-end moves. Here are some residential real estate investment tax tips to consider:

1. Get Help

Taxes are complicated, especially when you are running a residential real estate business and/or claiming additional income or losses from a real estate investment. Deductions must be itemized and specific tax rules must be understood and followed. Doing it yourself is risky. Using tax software may not cut it. Hire a professional tax advisor who has experience with residential real estate investment.

2. Get Organized

If you haven’t already been carefully tracking expenses/profits and keeping all your receipts and documentation in order, now is the time to get organized. Get all your tax documents and books in one place right now, so you aren’t scrambling to get everything together when it’s time to file your return. The more organized you can be, the better.

3. Wait to Sell

If you are flipping a house and it’s ready to sell, you may want to wait until after the new year to close the transaction. This will save you on paying taxes on the capital gains for this tax year.

4. Spend Money Now

The more you can spend on your investment properties by the end of the year, the better. This may include renovation expenses, repairs, maintenance and materials. The same goes for any construction or home inspections that can be completed before the year ends. Spend the money now and then deduct those expenses as part of this tax year.

5. Delay Rent Collection

If you are a landlord, you may want to hold off on collecting December rent until January. This is income you won’t have to count for this tax year if not collected.

6. Pay HOA Dues Early

If your property is part of an homeowners association, you can pay your January/February HOA dues early (before the end of this year) and write off those expenses.

7. Understand What You Can and Can’t Deduct

Tax rules for real estate investments can get very complicated. Not all expenses are fully tax deductible. Not all profits are taxable. At the same time, there could be deductible costs and losses that you didn’t know about. You have to understand differences between passive vs. non-passive (active) income and losses. Determine if you qualify as a “real estate professional,” which may come with some tax advantages. Consult with your tax advisor and know all the rules you should know.

8. Track Your Real Estate Time

Whether you flip houses or buy and hold rental properties, you should always track the time spent on real estate activities. This can help your case of being considered a real estate professional and may offer some useful tax savings compared to an investment the IRS wouldn’t consider a career.

These are just a few year-end tax saving tips for residential real estate investors. For help with all your real estate investment needs, consider joining the PropertyLark home buying network. Learn more or contact us to see if you qualify.