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May 23, 2024 | read

2024 Real Estate Tax Landscape: Crucial Details

Thomas Castelli

Welcome to the latest episode of the Tax Smart REI Podcast, where today we break down what real estate investors need to know about their taxes in 2024. In this episode, we discuss the intricacies of the 2024 Corporate Transparency Act, bonus depreciation, and other vital tax considerations.

The 2024 Corporate Transparency Act

The Corporate Transparency Act marks a significant change, particularly for LLCs and similar entities. If your entity was created before 2024, you have until the end of the year to comply. Entities formed in 2024 have 90 days post-creation for compliance. It’s a FinCEN regulation aimed at curbing illegal activities by identifying the beneficial owners of these entities. The Act requires detailed information, including reporting changes in beneficial ownership and company details. The responsibility of filing falls on the entity owners, and as regulations continue to evolve, staying updated is crucial for compliance and avoiding penalties.

Bonus Depreciation in Flux

Bonus depreciation will drop to 60% from 80% in 2024, affecting immediate expense write-offs for property and other assets. This decrease is part of the scheduled reduction from the Tax Cuts and Jobs Act, significantly impacting investment returns and tax planning. There is a ray of hope, however, as discussions in Congress hint at a possible extension of the 100% bonus depreciation. This potential extension, part of the Build It in America Act, may continue the higher rate until 2026, but as of now, this is speculative, and investors should prepare for the current law while keeping an ear to the ground for legislative updates.

Tax Strategies for W2 and Active Business Income

In discussing Real Estate Professional Status (REPS) and short-term rental strategies, the consensus remains that they are viable methods for reducing taxable income from W2 and active business income. For REPS, material participation in real estate activities is key, while the short-term rental strategy relies on active involvement and optimization of properties. However, as the landscape of bonus depreciation changes, investors need to approach these strategies with a detailed understanding of current laws and potential shifts, ensuring they don’t let the ‘tail wag the dog’ in decision-making.

Understanding and Preparing for Tax Deadlines

Deadlines are critical in tax planning. January 31st is the cutoff for filing 1099 NECs for independent contractors paid over $600. March 15th marks the filing deadline for entities, with a possible six-month extension leading to a September 15th final deadline. Similarly, individual and C Corp taxes are due April 15th, with a potential extension to October 15th. Notably, extensions apply to filings, not payments — estimated tax payments are still due at the original deadlines to avoid penalties and interest. Additionally, specific deadlines for IRA contributions and estimated tax payments (Q4 2023 and Q1 2024) need attention for effective tax planning.

The Importance of Bookkeeping

Effective bookkeeping is the backbone of a successful tax strategy. It allows for operational control, decision-making based on real data, and timely tax preparation. As the new year starts, consider making a resolution to maintain or improve your bookkeeping habits. Regular bookkeeping helps in catching anomalies, understanding revenue streams, and managing expenses effectively. Additionally, for those pursuing strategies like REPS, maintaining detailed time logs is essential for IRS compliance and substantiating material participation.

Conclusion

As we venture into 2024, remain vigilant and proactive about these tax changes and strategies. Join us for more in-depth discussions on real estate investment tax strategies in future episodes. Here’s to a prosperous and tax-efficient year in real estate investing!

Searching for the right tax strategies to ease your tax burden this year? Contact us today.

Listen to this podcast episode below. 

Disclaimer: This podcast summary was partly generated by AI and may contain some errors or miss key points from the audio recording.