Have you downloaded our 2023 Year End Tax Planning Guide for Businesses yet? Inside, you’ll find some helpful information and action items to take before year end, including some timely tips for real estate investors heading into 2024. Here’s a sneak peek.

5 key considerations for real estate investors

1. Section 179 Expensing- Sec. 179 expensing allows businesses to immediately deduct the cost of eligible new or used assets, such as equipment and furniture. You may be able to lower taxable income by accelerating depreciation on assets placed in service before year end. Remember--assets must be up-and-running in 2023 to qualify for Sec. 179, not simply purchased.

• What is the purchasing limit for 2023 phaseouts? The limit starts at $2.89 million and the deduction is reduced on a dollar for dollar basis after the threshold is reached. Thus, the entire ability to take Section 179 will go away when the total purchase amount for the year is over $4,050,000.

• What is the expensing limit for 2023? $1,160,000 is the maximum amount that can be deducted using Section 179.

2. Bonus Depreciation- With bonus depreciation, companies can deduct the full cost of certain new and used capital expenditures in the year they’re placed in service. This break isn’t subject to any spending limits or income-based phaseout thresholds. It applies to:

• Qualifying property placed in service after September 27, 2017, and before January 1, 2024.

• Bonus depreciation will be gradually phased out, unless Congress extends it.

First-Year Bonus Depreciation Percentages

If you’re planning to purchase assets within the next year, you might want to act before year end to take advantage of the bonus depreciation program. Starting in 2024, bonus depreciation is scheduled to fall to 60% of the cost of most qualifying assets. We can help evaluate what’s right for your business. There are also many state tax considerations when determining if Section 179 or bonus depreciation is the best option.

3. Like-kind exchanges- Will your company be selling business property in 2024 that results in a gain? Under Section 1031 of the Internal Revenue Code, you may exchange business or investment property (the relinquished property) for like-kind business or investment property (the replacement property) without recognizing any current gain or loss. There are specific rules that need to be followed and certain actions performed within set timelines to benefit from these types of exchanges. This can cause stumbling blocks for the transactions to be qualified so it is extremely important to work with an experienced tax professional and qualified intermediary to guide and facilitate the transaction.

4. Cost Segregation Studies- Have you constructed, acquired, expanded or made improvements to real estate recently? Cost Segregation is a commonly used strategic tax planning tool that allows real estate owners who have constructed, purchased, expanded, or remodeled any kind of real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes. The primary benefit of a cost segregation study is to identify all of the costs that can be depreciated over a shorter period. The amount of allowable bonus depreciation is currently: 80% for property placed in service in 2023, and 60% in 2024.

5. Opportunity Zones- Investing in these funds offers the following tax incentives:

• Capital gain deferral

• Potential permanent gain exclusion of the appreciation

There’s no cap on how much capital gain money can be rolled into an opportunity zone Investment. As time goes by, investors get preferable tax treatment on the appreciation from these new investments, after 10 years, additional capital gains are tax free.

What is on the horizon for Opportunity Zone Funds? You may have an unknown future tax obligation that will require cash flow planning if you currently hold OZ investments. We will keep you posted on long term tax planning for opportunity zone investments and the best way to plan for these tax bills.

Need guidance as you plan for 2024? We can help. Reach out to us today.