As the year comes to a close, savvy real estate investors know that November and December are not just about wrapping up deals but about strategic planning. The right moves before December 31 can mean major tax savings, stronger cash flow, and a more profitable start to the new year.
Disclaimer: This article is for informational purposes only and should not be considered tax or legal advice. Always consult with a licensed accountant or tax professional before making financial decisions.
1. Take Advantage of Depreciation
Real estate depreciation allows investors to deduct the cost of a property over time, even as it appreciates in market value.
Pro Tip: If you purchased a property this year, check with your CPA to see if a partial-year depreciation deduction should be applied.
Advanced Strategy: Consider a cost segregation study to accelerate depreciation on specific components like fixtures, flooring, or appliances. This can help you claim larger deductions sooner and improve cash flow.
2. Use a 1031 Exchange Before Year-End
If you sold an investment property, a 1031 Exchange allows you to defer capital gains by reinvesting in another like-kind property. The deadlines are strict: you have 45 days to identify and 180 days to close on the replacement property. Starting the process early ensures your exchange rolls smoothly into the new year without IRS timing issues.
3. Leverage Interest Deductions and Expenses
Every deductible expense adds up, especially before tax season. Mortgage interest, property management fees, insurance, maintenance, and even travel related to managing rentals can be deducted. If you plan to upgrade appliances, flooring, or roofs, doing so before December 31 can help lower your taxable income for the year.
Note on SALT Deductions:
As of 2025, the State and Local Tax (SALT) deduction cap has been increased to $40,000 for most taxpayers (and $20,000 for married individuals filing separately). This increase is temporary, applying to tax years 2025 through 2029, and is scheduled to revert to the previous limit in 2030 unless extended by Congress.
There are income limits as well. The higher deduction begins to phase out for individuals with a modified adjusted gross income (MAGI) over $500,000 ($250,000 if married filing separately) and is fully phased out above $600,000 ($300,000 if married filing separately). Both the cap and thresholds will increase by 1% each year through 2029.
To qualify, you must itemize deductions on your federal tax return. Many taxpayers may still find that taking the standard deduction provides a greater overall benefit. For investors in higher-tax states such as California, it is important to review your total property and income tax exposure with your CPA before year-end to ensure you are maximizing all available write-offs.
4. Review Entity Structure
The right ownership structure can significantly affect your tax exposure. LLC or S-Corp owners should make sure business expenses, mileage logs, and write-offs are properly documented.
Pro Tip: Consult your CPA to see if electing S-Corp status could reduce self-employment taxes in future years.
5. Work With a Lender Who Understands Investor Strategy
The right lender can make a big difference, not just in securing financing but in aligning your loan structure with your tax and cost segregation strategy. Partner with professionals who understand how depreciation, 1031 Exchanges, and portfolio growth all work together to build long-term wealth.
6. Take Advantage of 100% Bonus Depreciation
Qualified real estate investors can now benefit from 100% bonus depreciation on eligible property acquired and placed in service after January 19, 2025. This allows you to deduct the full cost of certain improvements or purchases in the first year instead of depreciating them over time.
If you are considering upgrades or a new acquisition, closing and placing the property in service before year-end could provide a significant tax advantage. Always confirm details with your CPA to ensure you qualify.
Wrap-Up: Year-End Strategy Equals Year-Round Growth
Smart investors use the final quarter not to slow down but to tighten systems, reinvest profits, and optimize taxes. By acting before year-end, you are setting up 2026 to be your strongest year yet.
At Team Sanchez, we are passionate about helping our clients make smart real estate moves that build long-term wealth. Whether you are growing your investment portfolio, exploring a 1031 exchange, or looking to purchase before year-end, our team is here to guide you every step of the way.
We proudly serve investors and homeowners across Los Angeles, Orange County, and the Inland Empire with personalized strategies and trusted local connections. If you are planning your next move or want to learn how to position your portfolio for 2026, connect with us today. We are here to help you reach your goals with confidence.
