7 Tax Moves Real Estate Investors Should Make Before December 31

7 Tax Moves Real Estate Investors Should Make Before December 31

Most of the money in real estate tax planning isn't made in April. It's made in the last six weeks of the year — and it evaporates at midnight on December 31.

That's the thing nobody tells you about real estate investor year-end tax moves: almost none of them work retroactively. You can't decide in March that you wanted a cost segregation study done last year. You can't backdate an hours log. The calendar is the enforcement mechanism, and the IRS doesn't grant extensions on physics.

Here are the seven real estate investor year-end tax moves worth making before the year flips — and the deadline that quietly kills each one.

1. The cost segregation study: a real estate investor year-end tax move that frees six figures

A cost segregation study breaks your building into its component parts. Instead of depreciating the whole thing over 27.5 or 39 years, an engineering study carves out the five-, seven-, and 15-year property — carpet, cabinetry, parking lots, specialized wiring — and lets you front-load that depreciation now.

On a $2 million commercial building, a study commonly reclassifies 20% to 35% of the basis into short-life property. That's $400,000 to $700,000 of accelerated deductions, much of which can hit in year one once bonus depreciation is layered on.

The catch is in the words "placed in service." The asset has to be in service before December 31, and a real engineer has to finish the study before you can claim the deduction. Engineering firms book out. Start in December and you're starting next year's plan.

2. Lock in 100% bonus depreciation while the percentage is back at full

Here's the part that changed, and the part the brief told us to verify before printing a number: bonus depreciation under IRC Section 168(k) is back at 100%.

The One Big Beautiful Bill Act permanently restored 100% bonus depreciation for qualifying property — generally MACRS property with a class life of 20 years or less, plus qualified improvement property — acquired and placed in service after January 19, 2025. The IRS confirmed the mechanics in Notice 2026-11. The old 80%/60%/40% phase-down is gone.

This is what makes the cost seg in move #1 so powerful right now. That $500,000 of reclassified short-life property? Under 100% bonus, much of it deducts in the year placed in service instead of bleeding out over 15 years.

The timing move: if a purchase is going to land near year-end anyway, getting it placed in service before December 31 pulls the full deduction into this tax year. If your income is low this year and spiking next year, you might do the opposite and defer. The percentage no longer forces your hand — your income picture does.

3. Build the real estate professional status hours log before the audit asks for it

Passive losses normally can't offset your W-2 or business income. Real estate professional status under IRC Section 469(c)(7) is the override — it lets rental losses run against ordinary income. For a high earner with a depreciation-heavy portfolio, that's the difference between a paper loss and a real refund.

Two tests, both required, both annual:

• The 750-hour test: more than 750 hours in real property trades or businesses where you materially participate.
• The more-than-half test: that real estate work has to be more than half of all the personal services you perform in the year.

The trap is documentation. The IRS wins these cases on the hours log, and a contemporaneous log — dates, hours, what you did, which property — beats a spreadsheet you reconstruct the week before the audit. Spouses can't pool hours to clear 750. The status resets every January 1. Build the log as you go, not as you panic.

4. Don't blow the 45-day clock on a 1031 exchange

A 1031 exchange defers the capital gains tax when you roll proceeds from one investment property into another. The deferral is generous. The clock is brutal.

From the day you sell, you have 45 days to formally identify replacement properties and 180 days to close. Those two windows run concurrently, not back-to-back — the 180 includes the 45. Miss the 45-day identification by a single day and the exchange is dead, even if day 45 lands on a Sunday or a holiday. There is no grace period.

One year-end wrinkle: if you start an exchange late in the year, the 180 days can get cut short by your tax return due date. To get the full 180, you generally have to file an extension on the return for the year of the sale. A reverse exchange, where you buy first, is one way to take the 45-day pressure off — but it has to be structured before you close, not after.

5. Use a grouping election to pull a short-term rental out of passive treatment

Short-term rentals are a quiet loophole. A property with an average guest stay of seven days or less often isn't a "rental activity" under the passive rules at all — which means you can treat its losses as non-passive by materially participating, without ever clearing the 750-hour REPS bar.

When you own several of them, a grouping election under the Section 469 regulations can combine the properties so you only have to prove material participation once across the group, not property by property. Done right, the losses offset other income. Done late, you're stuck arguing material participation on each unit separately. The documentation — again — has to exist before year-end, not after.

6. Square up your estimated payments and harvest losses

Two housekeeping moves with real dollars attached.

First, true up your fourth-quarter estimated payment. Real estate income is lumpy — a big gain or a refinance can blow past what you projected in spring, and the underpayment penalty is just wasted money. Recalculate in December while you can still write a check.

Second, tax-loss harvesting isn't only for stocks. If you're sitting on a property or a syndication interest that's underwater and you've got gains elsewhere, realizing the loss before year-end can offset them. Watch the related-party and wash-sale-adjacent rules — this is exactly the kind of thing to run past a CPA before pulling the trigger.

7. Pressure-test the entity and the estate picture

For investors with serious holdings, the year-end review goes past the return. Is the property held in the right entity for liability and basis? Are there cross-border holdings — a property abroad, a foreign partner — that trigger filing obligations most generalist preparers miss entirely? Has the gifting and basis-step-up plan kept pace with the portfolio's growth?

These aren't deadline moves in the same way. But they're the ones that compound, and they're easiest to fix while you're already in the file.

Where real estate investor year-end tax moves go to die: the wrong CPA

Every move on this list dies on a date. The reason investors leave six figures on the table isn't ignorance of the rules — it's hiring a generalist who finds out about the cost seg in April, when it's already too late.

OLarry is a real estate and international tax practice on Sam's List built for exactly this — high-net-worth investors, commercial property owners, and cross-border portfolios where the year-end calculus is the whole game.

Read OLarry's verified reviews on Sam's List, then book an intro call before December 31 — while there's still runway to act on every move above instead of just reading about them next year.