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Year End Tax Planning for Real Estate Industry

December 08, 2022

Real estate investors…there are still opportunities for tax savings before year end. Consider taking advantage of opportunity zones, section 179 expensing, bonus depreciation and more.

Have you downloaded our 2022 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. Here’s a sneak peek.

3 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 2022 to qualify for Sec. 179, not simply purchased.

  • What is the purchasing limit for 2022 phaseouts? The limit starts at 2,700,000 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 $3,780,000.
  • What is the expensing limit for 2022? $1,080,000 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, 2023.
  • Bonus depreciation will be gradually phased out, unless Congress extends it.

First-Year Bonus Depreciation Percentages

2018-2022 100%

2023 80%

2024 60%

2025 40%

2026 20%

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 2023, bonus depreciation is scheduled to fall to 80% of the cost of most qualifying assets.

There are also many state tax considerations when determining if Section 179 or bonus depreciation is the best option. We can help evaluate what’s right for your business.

3. 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 money can be invested in opportunity zones. 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?

The Opportunity Zones Transparency, Extension and Improvement Act was introduced earlier this year. The Bill is a bipartisan, bicameral bill that would extend opportunity zone tax benefits, add additional reporting requirements, sunset certain non-impoverished Opportunity Zones and more if passed.

Need guidance as you plan for 2023? We can help. Reach out to us today.

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