End of Year Financial Planning Tips For Real Estate Investors
It’s only fall, but the holiday season is nearly in full swing. That means that you and your family will be busier than ever. Before things get too hectic, take time now to prepare financially for next year’s taxes. As a real estate investor, your tax returns are a little more complicated than most. Plan now so that you and your accountant can take advantage of all the possible benefits of your real estate investment activities.
Gather Investment Records
Go through your real estate portfolio and gather up all your investment records for the year. If you own a turnkey rental, you can access your property manager’s portal and download all the financials. Be sure to download receipts for any repairs and maintenance you paid for in 2019. For private money lending, you’ll only need your bank statements showing your interest payments. You don’t need to print all these things out. Just make sure you organize the digital files somewhere on your computer. Many investors find it helpful to separate them by project or investment for easier cross-referencing later.
Arrange for Repairs and Replacements Now
When you pay for repairs and replacements in your real estate rentals, those expense are tax deductible. Get those deductions on this coming year’s tax return by arranging now to have them completed by year’s end. Coordinate with your property manager now to get a list of expenses anticipated for the end of this year and early into next year. Prioritize by need and by your ability to pay for them by December 31. As you know, contractors and repairmen get busier during holiday season, too. The earlier your property manager books repairs and replacements and installs, the more likely it is they’ll be done in time for you to claim them on your 2019 tax return. If a repair project does overflow into the new year, get an estimate of the final bill and go ahead and pay toward it so at least some of that expense can be claimed on your April 2020 tax return.
Pay Recurring Expenses One Month Ahead
Typically, the IRS doesn’t take notice if you pay January’s expenses in December (confirm this with your CPA). Make a list of your recurring expenses that will come up in January and process those payments by December 31 so you can deduct them. Recurring expenses might include HOA fees, property management fee, grounds maintenance fees and any rental property utilities you pay on behalf of the tenant.
Be Careful With 1031 Exchanges
If you’re in the middle of a 1031 exchange around holiday season, be very careful. As you know, you need to buy and sell according to strict guidelines in order to get the 1031 exchange tax benefits. Many title companies, banks and other institutions have reduced hours during holiday season. Realtors and accountants also take extra time off to spend with family. These seemingly innocent vacation days can endanger your deals going through in time to comply with 1031 exchange rules. Do what you can to speed things up before the holidays hit, and avoid leaving your own tasks to the very last minute.
Organize Your Travel Time Records
As a real estate investor, the time you spend traveling to and from your investments is tax deductible. Often, people record this time in an app or by hand in a notebook in the glove box. It’s a relatively simple task, but over the course of a year, these records tend to get sloppy. Get these records out now and make sure they’re in good order. You’ll want the total time and mileage for each outing and the address of the destination. Then you’ll need the complete year-to-date totals. From here on to the end of the year, try to keep these records neat so you don’t have to organize them again when you hand over your financials to your CPA. You may never need to show a tax representative the details of your travel, but you should always keep them on hand to be on the safe side in case your deduction is ever challenged.
Purchase Rehab Materials Now
If you’re a hands-on real estate investor doing rehabs, buy as many of your materials as possible before the year’s over. Hardware stores often put building materials on sale at the end of the year so they can report higher sales to stock holders and make room for new inventory. Also, there’s less construction in winter and they’re eager to make sales. You’ll be able to take advantage of the tax deductions and possibly save money on sale prices.
Hold Off on Selling a Flip
If you’re an investor who makes money selling flipped properties and you have one about to close, try to delay the closing until after the New Year. That way the income will fall into next year, and you’ll have the whole rest of the year to offset the income with more deductions.
These are just some year end financial planning tips that are especially useful for real estate investors. It’s not too early to get started now organizing and planning your finances so you have a better tax outcome in the spring. Always consult with your own tax professional for the final word on deductions. For more information about making money from real estate investments, please contact us.