Real Estate Tax Calc
Accelerate deductions, defer income
The classic year-end move: pay deductible expenses before December 31 and collect income in January where possible. For rentals, this means: prepay January insurance premium (if eligible to deduct under the 12-month rule), order and pay for year-end repairs, and pay property management invoices.
On income timing: if your tenant's December rent arrives in January's mail, it's January income. Do not ask tenants to pay early unless you're in a lower tax bracket this year than next — the reverse can apply too.
Review passive loss position and consider dispositions
Pull your suspended passive loss carryforwards. If you have accumulated losses from a property you're considering selling, selling before December 31 frees them in the current tax year — useful if you also have large capital gains or passive income this year.
If you have a rental that's been a mediocre performer, a tax-motivated sale at year-end can accelerate passive losses and offset gains. Timing matters: a December closing means current-year tax treatment; a January closing shifts everything a year forward. Coordinate with your 1031 exchange timeline if applicable.
Place new assets in service and make elections
Any new appliance, HVAC, or rental-related equipment placed in service before December 31 qualifies for the current year's bonus depreciation and Section 179. Placing assets in service on December 31 still qualifies — you don't need a full year.
Cost segregation studies for properties acquired this year should be completed before filing your return. If you missed making the de minimis or small taxpayer safe harbor elections in prior years, a Form 3115 accounting method change may let you catch up. Review whether the grouping election for real estate professional status should be made or modified before filing.
Harvest capital losses to offset a rental sale
If you sold — or plan to sell — a rental at a gain this year, review your taxable investment accounts before December 31 for positions trading below cost. Realized capital losses offset capital gains dollar for dollar, and up to $3,000 of net loss can offset ordinary income, with the rest carried forward.
Harvesting losses to shelter the long-term-capital-gain slice of a rental sale is one of the cleanest year-end moves. Note the limits: harvested losses offset the capital-gain portion but not the unrecaptured Section 1250 depreciation recapture, and the wash-sale rule bars deducting a loss if you rebuy a substantially identical security within 30 days.
Watch your 1031 exchange clock across year-end
A 1031 exchange has a rigid 45-day identification window and 180-day closing window, and neither pauses for the calendar. The 180-day period is also cut short by your filing due date: if you sell late in the year, the exchange must close by the earlier of 180 days or the due date of that year's return.
So a sale in October or November may require filing an extension to preserve the full 180 days. Map both deadlines the moment you sell, and calendar the extension if the exchange will spill into the next year, or you can lose the deferral on a technicality.
Fund retirement accounts from real estate business income
If your real estate activity generates self-employment income — you are a dealer, agent, property manager, or run short-term rentals that rise to a trade or business — you may be able to fund a solo 401(k) or SEP-IRA and deduct the contribution.
A solo 401(k) generally must be established by December 31 (though it can be funded up to the extended due date), while a SEP can be both set up and funded by the return's due date. Passive rental income does not count as earned income for these plans, so this move applies only to the active side of a real estate business — but where it applies, it is one of the largest year-end deductions available.
Manage estimated taxes and the safe harbor
A large rental gain or a big depreciation recapture bill can trigger an underpayment penalty if you did not pay in enough during the year. Before year-end, check whether you meet a safe harbor: paying at least 90% of the current year's tax, or 100% of last year's (110% if your prior-year AGI exceeded $150,000).
A fourth-quarter estimated payment, or extra withholding from a W-2 or an IRA distribution — withholding is treated as paid evenly across the year — can cure a shortfall and stop the penalty from accruing. Running a quick projection in December is far cheaper than discovering the gap in April.
Consider a Roth conversion in a low-income year
A year in which rental losses or a cost segregation study push your taxable income down is an ideal window for a Roth conversion. Converting traditional IRA or 401(k) dollars to Roth is taxable, so doing it while your bracket is temporarily depressed by real estate deductions moves money into tax-free growth at a low rate.
The conversion must be completed by December 31 to count for the current year — unlike a contribution, it cannot be done after year-end and back-dated. Size the conversion against your projected taxable income so you fill the low bracket without spilling into a higher one.
Time repairs, the de minimis safe harbor, and partial dispositions
Year-end is the moment to decide the character of your capital spending. Work that is a repair is fully deductible now; work that is an improvement must be capitalized and depreciated. The de minimis safe harbor lets you expense items costing $2,500 or less per invoice or item if you make the annual election and have a written policy in place.
Buying and placing several sub-$2,500 items in service before December 31 can convert would-be capital costs into current deductions. And if you replaced a roof, HVAC unit, or other building component this year, consider a partial disposition election to write off the remaining basis of the old component in the year of replacement rather than depreciating a ghost asset for decades.
Lock in your REP and QBI hours logs
Two hour-based benefits are won or lost on documentation you should finalize before the year closes. For Real Estate Professional status, confirm you have contemporaneous records showing more than 750 hours and more than half your working time in real property, plus material participation in your rentals (or a valid grouping election).
For the Section 199A rental safe harbor, which can secure the 20% QBI deduction on rental income, the enterprise generally needs 250 hours of rental services for the year with separate books and records and contemporaneous time logs. If you are close to either threshold, a few documented year-end tasks — and, critically, writing the log now rather than in April — can be the difference between qualifying and not.
Accelerate cost segregation and bonus depreciation
With 100% bonus depreciation restored for property placed in service after January 19, 2025, a cost segregation study on a property you bought this year can produce an outsized first-year deduction — but only if the components are placed in service by December 31.
If you acquired a rental this year and have not run a study, model the first-year savings before you file; the study itself can be completed after year-end, but the placed-in-service date governs the year of the deduction. Pair this with the passive-loss analysis, because a large bonus-depreciation loss only helps this year if you have passive income, qualify as a real estate professional, or hold a materially-participated short-term rental.
Bunch deductions across two years
When your income swings between years, consider bunching discretionary deductions into the higher-income year. If this year's income is unusually high — perhaps from a rental sale — accelerate deductible repairs, prepay eligible expenses under the 12-month rule, and place depreciable assets in service before December 31 to concentrate deductions where they offset the most tax.
In a lower-income year, do the reverse: defer discretionary repairs into the following year when they will shelter more heavily taxed income. Because rental cash flow and the timing of large expenses are partly within your control, a two-year projection each December often reveals a bunching opportunity worth several hundred to several thousand dollars, especially when a sale, a vacancy, or a major capital project distorts one year's income.
Frequently asked questions
Can I deduct January's mortgage payment if I pay it in December?
You can deduct the interest portion of any mortgage payment actually paid in the tax year. Paying January's interest payment in December moves that deduction into the current year.
When is the deadline to make depreciation elections?
Most elections (de minimis safe harbor, small taxpayer safe harbor, bonus depreciation opt-out) must be made on a timely filed return — including extensions. The due date is typically October 15 for individuals on extension.
Can I take bonus depreciation on equipment bought December 31?
Yes. Equipment placed in service any time during the tax year qualifies for bonus depreciation for that year.
What is the deadline to set up a solo 401(k) for my real estate business?
The plan generally must be established by December 31 of the tax year, though contributions can be made up to the extended filing deadline. A SEP-IRA can be both established and funded by the return's due date, including extensions.
Can harvested stock losses offset my rental sale gain?
Yes, against the capital-gain portion, but not against the unrecaptured Section 1250 depreciation recapture, which is taxed at up to 25%. Watch the wash-sale rule if you plan to rebuy the same security within 30 days.
How do I avoid an underpayment penalty on a big rental gain?
Meet a safe harbor by paying 90% of this year's tax or 100% of last year's (110% if prior-year AGI topped $150,000). A fourth-quarter estimate or extra withholding late in the year can cure a shortfall, because withholding counts as paid evenly across the year.
Does the QBI rental safe harbor require a certain number of hours?
Yes. The Section 199A rental safe harbor generally requires 250 hours of rental services per year, separate books and records, and contemporaneous time logs. Finalize the log before year-end rather than reconstructing it later.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.