Tax Day 2024: Navigating Real Estate Tax Changes for Homeowners and Investors
Top 5 Tax Day Insights for Real Estate Owners
As Tax Day approaches, it's crucial for real estate owners to stay informed about tax implications that can affect their financial decisions. Here are five essential insights into the current tax landscape for homeowners and investors:
Expanding Deductions: In 2024, real estate investors can enjoy expanded benefits such as increased Section 179 deductions, now capped at $1,220,000, allowing for significant upfront cost recovery on qualifying property improvements.
Capital Gains Adjustments: Homeowners looking to sell can still leverage the exclusion of up to $500,000 on capital gains for married couples, provided they meet the residency requirements, highlighting the importance of strategic timing in property sales.
Standard Deduction Increases: The standard deduction has risen to $25,900 for married couples filing jointly, which might influence decisions on whether to itemize or take the standard deduction based on property-related expenses.
Tax Filing Extensions: With the complexity of real estate investments, many owners may consider filing for an extension to ensure all deductions are accurately captured and to avoid rushed decisions that could lead to unfavorable tax outcomes.
Local Property Tax Cap: The SALT (State and Local Tax) deduction remains capped at $10,000, which continues to be a significant consideration for property owners in high-tax states, affecting both planning and potential tax liabilities.
Tax Day is the big day for both homeowners and real estate investors. Most of the people incorporate real estate in their financial strategy, and therefore, knowing the laws related to taxes of real estate investments holds key importance for them.
The following blog post will go deep into what changes with real estate tax regulations come 2024 and give you actionable insights to help you cut through the complexities.
Understanding the New Real Estate Tax Regulations
Tax Day 2024 brings some key changes for real estate owners, above all, raising the Section 179 deduction cap to $1,220,000 and offering 50% bonus depreciation. In fact, under the current tax laws, such provisions do provide huge benefits to real estate investors looking to put more money into their property.
This allows the expensing of personal property used in rental properties, which can significantly reduce taxable income.
This allows the expensing of personal property used in rental properties, which can significantly reduce taxable income.
Unique Statistic:
The most recent survey disclosed that the use of updated Section 179 deductions is totally taken advantage of by only 3.5% of real estate investors, thereby indicating that many are missing out on potential tax savings.
Tax Planning Strategies for Homeowners
Proper tax planning may, therefore, bring along tremendous savings to the homeowner, considering the possible deductibility of mortgage interest and property taxes. Now, in the year 2024, with the standard deduction pegged at $25,900 for married persons filing jointly, there is more reason than ever to be sensitive about when to itemize versus when to take the standard deduction.
Key Tips Include:
Itemize deductions if total mortgage interest, property taxes, and other deductible expenses are greater than the standard limit.
Once the building is ready, it is time to consider the installation of energy-efficient features that will qualify for more tax credits, therefore reducing the total tax burden.
Capital Gains Tax Strategies for Sellers
Selling a property can lead to significant capital gains taxes, but there are strategies to mitigate these costs.
Not only this, but the blessing brought with it is so mighty that it allows married couples to exclude up to $500,000 of capital gainsᅳor up to $250,000 for single filersᅳfrom the sale of a primary residence if the owner has lived in the home for two of the last five years.
Advanced Strategies:
Utilizing a 1031 exchange for investment properties to defer capital gains taxes.
Keep good records of your improvements to the home and selling expenses, which can be used to increase your cost basis of the home in order to reduce taxable gains.
Q&A Section:
Q1: How do the new tax laws affect first-time homebuyers?
A: First-time homebuyers could receive several benefits while purchasing a house. Some of these include taking advantage of tax credits and deductions for points paid on securing a mortgage and energy-efficient upgrades.
Q2: What are the implications of renting out a portion of my home?
A: If the taxpayer rents even part of the house, the taxpayer may be entitled to extra income. However, the person is obligated to report the rental income at the same time when filing a tax return. The taxpayer can offset the income with related expenses.
Q3: Can I deduct home office expenses if I work from home?
A: Yes, in part. Generally, if you use part of the home exclusively on a regular basis for business purposes, you may be able to deduct the part of the expenses of your home that are attributable to business-use-of-the-home activity. That would include part of the utilities, home insurance, and home maintenance.
Q4: What is the IRS plan for those who can't pay the full amount of the tax bill by the deadline?
A: Individuals unable to remit full payment by the required due date are encouraged to pay as much as they can to help limit penalties and interest, and FILE YOUR TAXES, contact the IRS for a payment plan!
Q5: How do property taxes impact my federal tax return?
A. Within the limits of the state and local tax deduction, up to $10,000 ($5,000 married filing separately) of the property taxes paid are deductible on your federal tax return.
Tax Day 2024 is upon us; all these laws and benefits will come into play for real estate stakeholders within this ever-evolving tax landscape. It then calls for homeowners and real estate investors to do strategic tax planning with the set of applicable deductions and credits along the way.
Be ready for Tax Day 2024 with a customized tax plan, suitable for the latest in real estate tax law. Communicate with your tax professional and ensure you derive maximum benefit from your investment while efficiently negotiating through the complexities of real estate taxation.
Quick Tax Insights for Real Estate in 2024 - Filing Last Minute
1. Section 179 Deduction Expansion:
- Statistic: For 2024, the Section 179 deduction limit has increased to $1,220,000.
- Insight: This expansion allows real estate investors to deduct the full cost of qualifying property improvements in a single year, significantly reducing taxable income.
2. Standard Deduction vs. Itemizing:
- Statistic: The standard deduction for married couples filing jointly in 2024 is $25,900.
- Insight: Compare your total mortgage interest, property taxes, and other deductible expenses to this amount to decide if itemizing deductions could be more beneficial.
3. Capital Gains Exclusion on Home Sales:
- Statistic: Up to $500,000 for married couples, and up to $250,000 for single filers can be excluded from capital gains on the sale of a home.
- Insight: Ensure eligibility by living in your home for at least two of the last five years before selling.
4. Energy-Efficient Upgrade Credits:
- Statistic: Credits for certain energy-efficient home improvements can reduce tax liability directly.
- Insight: Installing solar panels or other qualifying systems in 2024 can earn a tax credit of 26% of the cost, including installation.
5. Rental Income and Expenses:
- Statistic: All rental income must be reported, but associated expenses can often offset this income.
- Insight: Deductible expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs.
6. Home Office Deduction Eligibility:
- Statistic: The home office must be used regularly and exclusively for business to qualify for deductions.
- Insight: Calculate the deduction using the simplified option at $5 per square foot of home office space up to 300 square feet.
7. 1031 Exchange Benefits:
- Statistic: No limit on the number of times or frequency you can do a 1031 exchange.
- Insight: Defer capital gains taxes on investment properties by reinvesting the proceeds from the sale into another property.
8. Tax Filing Extension:
- Statistic: Filing a tax extension gives you until October 15, 2024, to file your return.
- Insight: An extension to file is not an extension to pay any taxes due, so estimate and pay what you owe by April 15 to avoid penalties.
