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Year-End Financial Strategies for Property Owners: Navigating Tax Season with Ease

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As the year comes to an end, it’s time to review your financial performance and prepare for the upcoming tax season. 

Whether you are a homeowner, a real estate investor, or a property manager, you must have a clear and effective financial plan to optimize your income, expenses, and taxes.

In this post, we’ll share some of the best year-end financial strategies for property owners or managers and how you can easily use them to navigate the complex tax season. 

#1 Focus on your year-end review

The first step to achieving your financial goals is to evaluate your current financial situation. A year-end review involves analyzing your property’s performance and profitability over the past year and setting goals and plans for the next year.

Here are some of the key aspects you should review:

Review the financial statements and reports

Understand your income, expenses, cash flow, occupancy rate, rent collection, and resident turnover. Then, compare the actual numbers with the budgeted or projected ones and analyze the variances.

Review residents’ feedback and satisfaction

You should review your residents’ online reviews, ratings, surveys, and complaints. Assess the quality of the renter’s service and communication and the responsiveness and effectiveness of the maintenance and repair requests.

Identifying the areas of improvement and the best practices for resident retention and satisfaction will strengthen your financial position next year.

Review the condition and current value of each property

Look at the building’s age, functionality, appearance, marketability, and amenities to assess each property’s current value. Savvy property owners check that value with the estimated value after depreciation to assets if their depreciation model is adequate.

Graphic of home value

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Identify spending patterns

Review your budget and spending habits. Identify any areas where you are spending more or less than you should. 

For example, you may be paying too much for utilities, insurance, or taxes or missing out on tax deductions, depreciation, or capital improvements.

#2 Leverage tax deductions

One of the most important benefits of owning a property is the ability to leverage tax deductions, reducing the amount of tax you owe. 

Besides things like charitable distributions, there are many types of tax deductions that property owners can claim, such as:

Rental expenses

You can deduct expenses such as mortgage interest, property taxes, insurance, repairs, maintenance, utilities, advertising, management fees, and travel expenses. However, you can only deduct the portion of the expenses allocated to the rental use of the property, not personal use.

Qualified business income deduction for property owners

You may be eligible for a 20% deduction on your qualified business income (QBI) from your rental property if you meet certain criteria and conditions. QBI is ‌net income from a qualified trade or business, which includes most rental activities.

Real estate income

If you meet certain criteria and conditions, you can deduct the income that you earn from selling or exchanging your property. 

For example, you can exclude up to $250,000 ($500,000 for married couples filing jointly) of the capital gain from selling your main home if you have lived in it for at least two of the last five years.

Tax-loss harvesting is another way to reduce your real estate income tax burden.

This process involves selling one or more properties at a loss to offset the short-term capital gains tax from selling another property for a profit.

Infographic showing tax-loss harvesting as a year-end financial strategy to help reduce tax

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The logic is that short-term capital gains are usually taxed at a higher rate than long-term gains, therefore improving your tax situation.

Leveraging the 1031 exchange as a property owner

A 1031 exchange is a tax strategy that allows you to defer the capital gain from the sale of your investment property if you reinvest it in another property of equal or greater value within 180 days. This strategy helps you avoid paying taxes on the gain and use it to grow your portfolio and wealth.

#3 Protect your assets

There are many factors that could affect your property’s value, income, or ownership, such as lawsuits, creditors, or natural disasters. 

Here are two ways to protect your assets from these potential risks and threats:

Reviewing your insurance plans

As part of an investment strategy, you should review your insurance policy and make sure that it covers your property from the risks you face, such as: 

  • Natural disasters
  • Theft
  • Fire

You should also check your policy’s limits, deductibles, and exclusions and see if you need to update or adjust them based on your budgetary constraints and risk tolerance.

Consider a real estate asset protection plan

Beyond the immediate focus on tax implications, savvy property owners may explore the strategic implementation of a real estate asset protection plan. 

This proactive approach involves fortifying real estate holdings against unforeseen challenges like lawsuits, creditors, or other claims that could threaten your ownership or equity, ensuring optimized tax positions and a resilient financial portfolio.

#4 Diversify your investments

Any financial advisor will tell you that diversifying your investments is one of the best ways to grow your wealth and achieve your financial goals. 

Here are some ways to diversify your investments as a property owner:

  • Invest in different properties, such as residential, commercial, industrial, or agricultural, with different characteristics, markets, and demands.
  • Invest in different locations, such as local, national, or international, that have different economic, political, and environmental factors.
  • Invest in different strategies, such as buy and hold, fix and flip, or wholesale, with different objectives, timelines, and risks.
  • Invest in different vehicles with different structures, costs, and benefits, such as REITs, ETFs, or crowdfunding.
  • Invest in different asset classes, such as stocks, bonds, or commodities, with different correlations, volatility, and returns.

For example, a property owner or manager in the travel and hospitality industry can buy used RVs as part of a diversified financial plan.

Buying used RVs as an alternative investment as a year-end financial strategy to help to diversify portfolios

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While this is a different type of asset to real estate and is subject to different market conditions, it can still cater to a similar market segment, allowing managers to leverage their industry experience and know-how.

#5 Make your life easier with property management software

Managing a property can be complex and time-consuming, especially with multiple properties and renters. 

Therefore, you need a system and tool to help you manage your property efficiently and effectively. That’s where property management software tools like ManageGo can help, automating many aspects of your property management processes.

Automated accounting systems can assist in organizing financial records, categorizing expenses, and generating reports, easing the burden of tax preparation the same way a financial professional would.

(Image source)

Financial advisors and financial professionals are expensive, but business process automation tools can tackle many of the same tasks at a fraction of the cost.

Choosing the right business intelligence platform isn’t always straightforward, though. For example, you may compare BI tools like Looker vs. Tableau to see which suits your needs better, yet using them in tandem may make more sense. You could, for example, use Looker to model your data and Tableau to visualize and explore that data.

Additionally, automation can facilitate timely rent collection, expense tracking, and invoicing, ensuring accuracy and efficiency in financial management.

#6 Seek help from a tax advisor

As you can see, managing your property finances and taxes at the end of the year can feel like a daunting and complicated task in the best of cases.

Navigating tax season is much easier when you have a tax advisor to back you up and do proper tax planning, given your circumstances. 

Tax professionals can also help you take advantage of tax deductions you may not be aware of, such as those for a VA home loan, home office expenses, and more.

Should you accept crypto?

Many residents today are interested in paying their rent with Bitcoin, Ethereum, or another cryptocurrency, so consider accepting crypto if your occupancy rates are down. While this comes with high volatility risk, it allows property managers to tap into a younger market.

However, if you, as a landlord or property manager, receive rental payment transactions in cryptocurrencies, you must make sure to file your cryptocurrency taxes correctly. 

In this sense, you can use a crypto tax calculator to ensure you have the correct numbers and comply with tax regulations.

Deadlines to be aware of

As a property owner or manager, you must know the deadlines and dates that affect your financial and tax obligations and opportunities. Here are some deadlines and dates that you should mark on your calendar:

DateRelated formsDescription
January 16Form 1040-ES4th Quarter 2023 estimated tax payment.
January 31W-2Form sent to employees (if you have them) for their individual income tax return.
January 311099-NEC,1099-MISC, and 1099-KThese are forms sent to your vendors or contractors (if you paid them more than $600) and to your residents (if you received more than $20,000 and 200 transactions from them).
April 1Minimum distributions.Required minimum distribution due if you turn 73 in 2023.
April 15Tax day, file Form 4868, and make IRA and HSA contributionsNormal deadline to pay your taxes or to file for an extension to file your individual income tax return. It’s also the last day to make contributions to your retirement accounts.
April 15Form 1040-ESFirst quarter 2024 estimated tax payment due.
June 17Form 1040-ESSecond quarter 2024 estimated tax payment due.
September 16Form 1040-ESThird quarter 2024 estimated tax payment due.
October 15Form 4868Deadline to file your extended 2023 tax return.

Wrap up your year-end financial strategies

As you can see, there are many year-end financial strategies that you can use to manage your property finances and taxes and achieve your financial goals. 

Performing a year-end review of your assets and financial situation, taking advantage of all the tax benefits you’re entitled to, harvesting losses, and diversifying your investment portfolio are all great ideas leading into the end of the year. 

You’ll be on the right track to a better financial future through sane investment decisions, proper asset allocation, and applying the other strategies we discussed above.

If you seek good investment advice from a financial planner, plan everything ahead of time, and keep your business organized with the right property management tools, you’ll be able to enjoy a laid-back holiday season

The best part? You won’t have to worry about the risks of a volatile market or the IRS knocking on your door.

About the Author

Ryan Robinson is a blogger, podcaster, and (recovering) side project addict that teaches 500,000 monthly readers how to start a blog and grow a profitable side business at ryrob.com.

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