Guide to 2024 Tax Changes: How Real Estate Investors Can Capitalize - Advanced Tax Advisors (2024)

As a real estate investor, understanding the complexities and ever-changing landscape of tax regulations is vital to your success. The tax year of 2024 brings several updates and modifications to familiarize yourself with, especially in areas such as capital gains tax rates, Safe Harbor rules for broker commissions, and depreciation asset expenses. This article aims to provide a comprehensive overview of these changes and their implications, along with offering guidance on how to navigate these complexities effectively. By staying informed and proactive, you can optimize your investment strategies, minimize tax liabilities, and confidently steer your investment journey in 2024.

Maximum Capital Gains Rate

Real estate investors should pay close attention to the capital gains tax rates for 2024, as they directly impact the returns on their investments. Capital gains taxes apply to the sale of assets like real estate, and understanding the tax implications is crucial for strategic financial planning. The rates for long-term capital gains, which include profits from the sale of real estate held for more than a year, will remain at 0%, 15%, or 20% in 2024. For most taxpayers, the maximum rate they will pay is 15%, making it essential for investors to optimize their holding periods to qualify for these favorable rates.

It is important to note that the capital gains tax rates are directly linked to specific income brackets. This correlation highlights the significance of understanding how these rates can impact your financial situation. Investors falling within the 10%, 12%, 22%, 24%, 32%, 35%, or 37% ordinary income tax brackets will be subject to corresponding capital gains tax rates for assets held for a year or less. Real estate investors should align their selling strategies with their tax planning to minimize their tax liability.

Starting in 2024, the maximum zero rate amounts and maximum 15 percent rate amounts under § 1(j)(5)(B), adjusted for inflation, are as follows:

Starting in 2024, the maximum zero rate amounts and maximum 15% rate amounts have been adjusted for inflation, providing clarity for different filing statuses such as Married Individuals Filing Joint Returns and Surviving Spouse, Married Individuals Filing Separate Returns, Heads of Household, All Other Individuals, and Estates and Trusts. These adjustments ensure that investors have a clear understanding of the thresholds that trigger the 15% capital gains tax rate. Staying informed about these changes is essential for real estate investors to make informed decisions about when to sell their properties and manage their tax liability effectively.

In summary, the capital gains tax rates for 2024 offer real estate investors an opportunity to optimize their investment strategies and minimize tax implications. By aligning selling timelines with favorable tax rates, investors can enhance their overall returns and navigate the complex landscape of capital gains taxes with confidence.

Election to Expense Certain Depreciable Assets

In 2024, real estate investors need to be mindful of the Section 179 tax rules. When electing to expense Section 179 property costs, the total allowable expense is capped at $1,220,000, as per § 179(b)(1).

If you’re considering a sport utility vehicle under this section, its cost is limited to $30,500 according to § 179(b)(5)(A). It’s important to note that the $1,220,000 limit can be reduced (but not below zero) under § 179(b)(2) if the total cost of Section 179 property placed in service during the 2024 taxable year exceeds $3,050,000. This information helps investors understand the tax deductions available for property expenses and the associated limits for the upcoming tax year.

Failure to File Partnership Return

For real estate investors engaged in partnerships, it is of utmost importance to be aware of the significant implications that arise from the failure to file a partnership return.As per § 6698(b)(1), if a partnership tax return is not filed by the due date, a penalty is imposed, which is a percentage of the unpaid taxes.

Specifically, for returns that are due to be filed in 2025, the penalty amount is set at $245. It’s important to note that this penalty applies to each partner within the partnership. Therefore, to avoid unnecessary penalties, partnerships are advised to ensure timely filing of their tax returns.

Failure to File S-Corp Return

For real estate investors engaged in s-corporations, it is of utmost importance to be aware of the significant implications that arise from the failure to file a s-corporation return.As per § 6699(b)(1), if a s-corporation tax return is not filed by the due date, a penalty is imposed, which is a percentage of the unpaid taxes.

Specifically, for returns that are due to be filed in 2025, the penalty amount is set at $245. It’s important to note that this penalty applies to each partner within the s-corporation. Therefore, to avoid unnecessary penalties, s-corporations are advised to ensure timely filing of their tax returns.

Standard Deduction

For taxable years beginning in 2024, the standard deduction amounts under § 63(c)(2) are as follows:

Starting in the tax year 2024, there are notable updates to standard deduction amounts that might affect your tax filings. The standard deduction, a significant factor in determining your taxable income, has undergone revisions that could impact your financial situation.

Standard Deduction Adjustments:

For the 2024 tax year, the standard deduction figures have been adjusted under § 63(c)(2). These deductions are crucial as they reduce your taxable income, ultimately affecting the amount of tax you owe.

Dependent Standard Deduction Changes:

If you have individuals who qualify as dependents, there’s an essential alteration in the standard deduction amount they can claim. As per § 63(c)(5), the maximum standard deduction for an individual claimed as a dependent by another taxpayer cannot exceed either $1,300 or the sum of $450 plus the individual’s earned income.

Additional Deductions for Aged or Blind Individuals:

Additionally, there’s an extra standard deduction under § 63(f) for individuals who are aged or visually impaired. For the tax year 2024, this additional deduction stands at $1,550. However, if the individual is unmarried and not a surviving spouse, this amount increases to $1,950.

These changes in standard deductions might significantly impact your tax liability, potentially reducing the amount of tax you owe or increasing your potential refund.

Change in Tax Rate Tables

Starting in the tax year 2024, the landscape of tax rates for different filing statuses undergoes notable changes. These adjustments in tax rate tables for distinct filing categories mark a significant shift in the tax brackets and implications for individuals and families filing their taxes in the upcoming year. Understanding these alterations is crucial for effectively planning your financial strategies and preparing for the 2024 tax year.

Section 1(j)(2)(A) –Married Individuals Filing Joint Returns and Surviving Spouses

Section 1(j)(2)(B) – Heads of Households

Section 1(j)(2)(C) – Unmarried Individuals (other than Surviving Spouses and Heads of Households

Section 1(j)(2)(D) – Married Individuals Filing Separate Returns

In the ever-changing landscape of real estate investing and taxation, it is vital to stay informed and adapt to new regulations and opportunities. As we navigate through 2024, the outlined tax considerations, from capital gains to broker commissions and expensing depreciable assets, can make a significant impact on your investment strategy and bottom line. Jose A. Ramirez, with his expertise in the field, can guide you through these complex tax scenarios, ensuring your choices are tax-efficient and in line with your investment goals.

For more detailed advice tailored to your specific situation, Click here to schedule a consultation with Jose A. Ramirez. Stay tuned to the Advanced Tax Advisors mailing list for more updates and insightful guides, to help you make the most out of your real estate tax strategy.