Year-End Tax Planning for Real Estate Investors
Originally published on November 12, 2026
“Once 12/31 gets here, you’re limited on what you can do going forward.” Daniel Roccanti, CPA
Year-end tax planning for real estate investors works best when it starts in October, not December. In this episode of Your CPA’s Take on Real Estate, James Moore CPAs Daniel Roccanti and Kyle Paxton explain which tax moves have to happen before the end of the year and which ones can wait until you file.
Daniel and Kyle released this episode early on purpose. Some decisions need to be made now even if the transaction itself can happen later, and a few items can wait until the return is prepared. Knowing which is which gives you more options before the calendar runs out.
The conversation covers cost segregation timing, S corp elections, retirement plan deadlines, 1031 exchanges that cross into a new tax year and gifting appreciated property to the next generation. They close with what your CPA needs from you now so your return and investor K-1s don’t stall in the spring.
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Full Transcript
[00:03] Daniel Roccanti: Welcome to Your CPA’s Take on Real Estate. I’m your host, Daniel Roccanti, back with co-host Kyle Paxton for another great video. This video today is going to be about year-end tax moves that real estate investors can’t afford to miss before the end of the year. Kyle and I wanted to make sure that we got this video out early this year.
[00:21] Daniel Roccanti: Instead of waiting till December, let’s make sure this video comes out in October so that our listeners have time to actually make these moves. It’s important because we need to establish urgency on a lot of the things we’re doing here. There’s lots of transaction and planning that needs to occur before the end of the year.
[00:43] Daniel Roccanti: For some decisions, we need to make the decision now, but we can actually push off the action of the transaction until later. And then there are certain items that we can truly wait on until we prepare the tax return. But it’s important to know what your options are, because once 12/31 gets here, you’re limited on what you can do going forward.
[01:03] Kyle Paxton: Daniel, this is a great time to jump on this. We got K-1s out for all of our pass-through entities in September. If there is any pain around tax due, we’re feeling that now if we haven’t already. So it’s a great time to reset on tax strategy and get ahead of what we’re doing for year-end. And as we know, December’s a mess.
[01:22] Kyle Paxton: We’ve got holidays, all that good stuff, and it goes quickly. So now’s a great time to jump into this. Daniel, do you want to kick us off by taking us through a cost segregation conversation?
[01:22] Daniel Roccanti: Well, everyone is familiar with cost segregation of real estate at this point. We talk about it a lot, and even in the real estate space in general, it’s going to come up at some point.
[01:45] Daniel Roccanti: It’s a significant reduction in taxes if done right. But we need to make sure we are doing it right and we are getting the deduction. So we’re going to focus less on the cost segregation itself and more on making sure you get it in the year you intend. The cost segregation really takes place in the year the real estate is placed into service.
[02:06] Daniel Roccanti: Kyle and I have conversations every year. “Hey, if I buy this property and it closes on December 20th, and then I get a cost seg, does it work?” And we’re like, “Hold on a second. Did you just buy it or is it placed in service?” Those are two completely different things.
[02:26] Daniel Roccanti: Sometimes it’s the exact same date, especially with properties that are ready to be turned immediately. But some properties you buy and you think, “I’m going to have renovations. I’m going to have things to do to get it ready to be placed in service.” So if you’re trying to take advantage of 100% bonus depreciation with the cost segregation, it’s really important to ask: is it actually placed in service before the end of the year?
[02:53] Kyle Paxton: Daniel, like you said, this is a conversation we have all the time. One thing I want to really emphasize in the tax planning around cost segregations is the timing of how we do these. We work with so many taxpayers who are either GPs of or personally own several properties. And I think a natural inclination for a lot of our clients is to say, “Okay, it’s a great time to own real estate for tax purposes.
[03:17] Kyle Paxton: Cost seg, cost seg, cost seg, cost seg, cost seg. All of these are placed in service in year one.” Then in the year we’re talking about, we can get a huge deduction and have a loss that we carry forward. A lot of what we do here is make sure that’s actually an optimal strategy. A lot of times, we might choose one property a year to perform a cost segregation on to maximize the benefit in each tax period, rather than create a huge loss that we’re rolling forward each year and may only be able to
[03:43] Kyle Paxton: apply against 80% of our income for net operating loss purposes. Like you said, we’re having conversations around cost segregations all the time. To me, this is the low-hanging fruit in the real estate space in the current tax environment, but I really want to pump the brakes and make sure that we’re intentional about how we go about cost segregations, and that we’re having a full, thorough conversation to make sure we’re actually getting the benefit we think we are when we perform a cost segregation.
[04:13] Daniel Roccanti: Kyle makes some really good points here. You really need to be planning your cost segregations. Getting it immediately isn’t always the best planning opportunity. Stretching it out over multiple years with multiple properties sometimes reduces your lifetime tax more.
[04:30] Daniel Roccanti: That’s what we’re always pushing here. It’s not “Am I saving as much as I can this year?” It’s more about saving on your lifetime tax. I don’t care if I’m saving at a tax rate of 10% if next year I’m going to have to pay 37%. That’s a huge difference in how much you’re actually paying. So don’t fall into recency bias when you’re thinking about your timeline, where you only look at your most current tax bill.
[04:56] Daniel Roccanti: You really need to be thinking long term here. Moving into our next section, we also wanted to briefly talk about entity elections. A lot of people think, “I need to make my entity election right now.”
[05:14] Daniel Roccanti: This would be if you’re doing an S corp or anything like that. A lot of the time, the IRS allows late election relief anyway. You usually have about two and a half months from the day the entity is formed to file your S corp election.
[05:35] Daniel Roccanti: But you have up to three years to do a late election, and it’s really easy to do. This usually isn’t for your rental real estate. It’s more for your operating real estate businesses. If you’re trying to make an S corp election, you need to consider it before the end of the year so you’ve made the decision, but actually making the election can wait. So there are two components.
[05:56] Daniel Roccanti: We usually tell our clients, “We want to try to make this decision before the end of the year,” because of things like reasonable compensation, 199A planning and all of that.
[06:14] Daniel Roccanti: But the actual election usually can wait until we file the tax return.
[06:14] Kyle Paxton: All good points, Daniel. I want to take a step back on this one and talk about entity elections as a function of broader entity tax structuring. Year-end is a really clean time to adjust your entity structure if you need to.
[06:32] Kyle Paxton: Having these conversations now in October with your CPA and legal counsel is really helpful to get out in front of any changes that need to be made. A lot of that is just administrative burden. You potentially have scenarios where you have to file multiple tax returns for the same year if you have a midyear reshuffle. So it’s a great time to have that conversation.
[06:50] Kyle Paxton: And one other point I want to dig into a little more, because I have this conversation all the time. You mentioned it. The S corporation is a really good entity structure for your management, your brokerage, your development and other operating businesses within the real estate space. It is generally a bad idea to own real estate that you are holding for investment or rental purposes within an S corporation.
[07:16] Kyle Paxton: That’s a whole other conversation, and we’ve talked about it, but I want to make sure we’re clear on that point. Year-end is a great time to key in on entity structuring and identify any elections that need to be made. All right, Daniel, let’s talk about retirement contributions, unless you have another point on entities.
[07:16] Daniel Roccanti: I love the disclaimer here, so I want to add to it.
[07:37] Daniel Roccanti: If you’re putting real estate into an S corp, you need to think twice about whether that’s the right choice. Flipping property is fine in an S corp, but for anything that’s a long-term hold, it’s most likely not the right move. It’s not 100% right all the time, but you need to think twice about it.
[07:37] Kyle Paxton: It’s outside the scope of our conversation here.
[07:57] Kyle Paxton: Reach out to us if you want to talk about that more. That’s a common conversation we have.
[07:57] Daniel Roccanti: Absolutely. So we’re going to jump into retirement contributions here. In real estate, this is going to be more for the operating business side. There usually aren’t retirement contributions when you’re dealing with long-term rental properties.
[08:18] Daniel Roccanti: But if you have an operating business with employees, you might have some kind of retirement plan, and timing really matters. If you have something like a 401(k), employee contributions need to happen before the end of the year. They can be pretty significant. For 2026, the elective contribution amount is $24,500, with an additional $8,000 catch-up if you’re over 50.
[08:47] Daniel Roccanti: It’s important that these contributions happen before the end of the year. But employer contributions can be more, because you can contribute up to $72,000 into a 401(k) plan. Those don’t have to be done by the end of the year. If I remember correctly, you have a few months after, and I think it’s March 15th. It depends on the entity.
[09:15] Daniel Roccanti: For most S corps, you have until the original filing date. But you still need to have some idea of whether you’re going to contribute to these plans. If you have something simpler like a SEP, you can also hold off until you’re filing the tax return, because those are all considered employer contributions and there are no employee contributions. So keep in mind whether it’s an employee contribution or an employer contribution. Employee contributions can’t wait.
[09:44] Daniel Roccanti: They need to happen before the end of the year. Employers have a little extra time, but you still need to understand that we need to accrue this, and then we need to pay it before we file the tax return.
[09:44] Kyle Paxton: All good points.
[10:01] Kyle Paxton: Daniel, I want to tie this back to our entity structuring conversation, because you made a good point that a lot of these retirement plans don’t function off of rental income. So for our long-term rentals, we’re talking more about the ordinary pieces we mentioned, like management, brokerage and development. This is one of the million reasons the conversation on entity structuring is important, because you can bifurcate management activities from the rental itself and then use that management function to create a vehicle that gives you room to make significant retirement contributions. We deal with this all the time
[10:31] Kyle Paxton: with our real estate investors. It’s a great strategy and something you should be thinking about if you own a significant amount of long-term real estate and you aren’t currently making significant investments into your retirement. All right, Daniel, 1031 exchanges.
[10:50] Kyle Paxton: Are you tired of talking about those yet? Let’s touch on how they function around year-end and what we should be thinking about.
[10:50] Daniel Roccanti: I never get tired of 1031 exchanges. It’s literally one of the best things in real estate. It’s truly one of the few things in the tax code where you can defer your taxes to the point where you never actually have to pay them.
[11:13] Daniel Roccanti: This is an important move in real estate. It allows you to sell your real estate and invest in new real estate without ever having to pay the tax bill. So it’s important to understand the rules and how this works if it crosses over a calendar year. I think a lot of people in the space misunderstand how this rule actually works.
[11:39] Daniel Roccanti: You can absolutely cross two calendar years, but it’s still important to understand the timing. When you’re doing a 1031 exchange, once you sell, or relinquish, your first property, you have 45 days to identify replacement property. So let’s say I sell my property on December 20th. I have until February 3rd to identify my replacement property.
[12:05] Daniel Roccanti: That crosses the calendar year, and that’s absolutely fine. Then I have 180 days to actually close on it. So I only have 45 days to identify it, but I have 180 days to close, so they give us extra time. That’s a happy thing, because I can actually wait to close on it. But it is important, because until you actually finish the 1031 exchange, you’re not going to be able to file your return.
[12:28] Daniel Roccanti: So for a lot of these that happen at the end of the year, if it takes a long time to close, you’re going to have to extend your return. You need to be prepared for that so you can properly file the 1031 exchange, because I have to know what the buy side is to fill out the form correctly.
[12:48] Daniel Roccanti: And there are events that create additional extensions. In Florida, hurricanes happen. It’s very common for one of our investors to be doing a 1031 exchange when a hurricane hits, and a hurricane will usually give you an additional extension.
[13:09] Daniel Roccanti: Sometimes you can see the 180 days turn into a whole calendar year, which pushes it off substantially. But it’s important that you understand the deadlines. We can absolutely cross years, but we normally still need to finish the exchange before the tax return can be filed, because we have to fill out the form showing the 1031 exchange was completed when we file your return.
[13:31] Kyle Paxton: You’re pretty thorough there, Daniel. That’s pretty much the rundown of 1031 exchanges around year-end. I think the key takeaways are that it’s totally okay to cross tax years and still fulfill the 45 days to identify the three replacement properties and the 180 days to close.
[13:49] Kyle Paxton: We see that happen quite a bit around year-end. Now, tie all of that together with the timing of putting the replacement property in service, cost segregations and everything else. Tying all of this up in a bow, there’s a lot of planning strategy around the timing. Unless you have anything else you want to say about 1031s, Daniel, let’s talk about gifting and estate planning and what that looks like before 12/31.
[14:06] Kyle Paxton: For 2026, as we’re coming up on year-end, the annual gift tax exclusion is $19,000 per recipient, or $38,000 if you’re married filing jointly and both spouses are using their exclusions.
[14:31] Kyle Paxton: So what that means is, Daniel is a really good friend of mine. I’m a married filing jointly taxpayer. My wife and I can gift Daniel $38,000 out of the kindness of our hearts before 12/31, and we have no reporting requirements to the IRS.
[14:51] Kyle Paxton: It doesn’t whittle away at our lifetime basic estate and gift tax exemption. So I’m just a standup guy if I do that for Daniel. That’s something to think about. It doesn’t result in any deduction or tax benefit on my wife’s and my return, other than the fact that we don’t have any reporting requirements around the gifts.
[15:16] Kyle Paxton: Daniel, do you have any other input on the gifting part of this before we pivot into estate planning?
[15:16] Daniel Roccanti: Gifting is very important for our real estate clients. Gifting isn’t real estate specific, but it’s very important for our high net worth families.
[15:35] Daniel Roccanti: Because real estate is such a great generational wealth tool, a lot of our families are asking, “How can I pass my wealth to the next generation, to my kids, while creating the least amount of tax possible?” We’ve talked about how 1031s are a great way to defer income tax, but gifting is a great way to defer estate tax.
[16:03] Daniel Roccanti: If you’re over that $30 million threshold, then you should really be gifting up to the annual limit every year to your kids or whoever you want your wealth to go to. Cash is the easiest way to do this, but it doesn’t have to be cash.
[16:23] Daniel Roccanti: A lot of our real estate clients are trying to find ways to add their kids to their real estate business. So they might gift non-cash items like LLC interests. If that’s the case, one, it’s important that you get a valuation done. And then you need to complete the transfer before the end of the year. It can’t wait.
[16:43] Daniel Roccanti: There’s no deferral here. When we’re working with our clients, we remind everyone, “Have you maxed out your gifting to your kids this year?” If that’s part of your bigger estate plan, you need to do it before the end of the year. And if it’s a non-cash item, you might need a valuation or an appraisal, which takes time.
[17:08] Daniel Roccanti: You need to have that done before the end of the year so you can complete the transfer. The last thing I want to add is to understand that gifting is more for estate planning. It’s usually not a good idea for income planning, because when you gift, you’re also gifting your original basis. There’s no step-up in basis with gifting.
[17:30] Daniel Roccanti: A step-up in basis comes when you die and your heirs inherit the item, not when you gift it. So you need to understand that if you’re gifting, you’re also giving away your basis, which means you’re passing on your income tax consequences. You can still use 1031 exchanges, and there’s a lot of other things you can do, but there’s a difference between income tax planning and estate tax planning, and you need a plan that accounts for how gifting affects both.
[17:30] Kyle Paxton: Beautifully laid out, Daniel. So let’s dig a little more into the basis side of this.
[18:02] Kyle Paxton: Like you said, cash is the easiest. Your fair market value is equal to your basis. We can gift the $38,000 and we’re good to go. But we’re talking about real estate here, so to your point, a lot of the inclination is, “How do I start bringing my children into my existing LLCs or into parcels of real estate that I own?” This is where we need to tie the holistic tax planning together.
[18:26] Kyle Paxton: We’ve broken this down in detail in other videos, but I really want to emphasize the planning around this. We talked about 1031 exchanges. Under current tax law, you can 1031 exchange indefinitely, keep rolling properties into replacement properties and never pay tax on those sales.
[18:49] Kyle Paxton: Five 1031 exchanges down the line, my basis in the property I’m holding might be zero. If I go and gift a portion of that property to my children, my children’s basis in that property is also zero. On the flip side, assuming I’m under the lifetime estate exemption and I don’t have any estate tax implications when I pass away, my children then get a step-up in basis to the property’s fair market value.
[19:19] Kyle Paxton: This is why 1031 exchanges are so important as an estate planning tool, because you can keep rolling that zero basis until you get the fair market value step-up when you pass. The gifting side is vastly different. There’s a step-up on passing and no step-up on gifting. So this is where we want to be really intentional about which assets we’re gifting, even if the fair market value is still $38,000.
[19:48] Kyle Paxton: For those appreciated assets, we really want to dig into the motivations for gifting and whether it actually makes sense, and make sure we’re clear on the tax implications when the people receiving the gifts end up selling the underlying assets.
[19:48] Daniel Roccanti: Absolutely, Kyle.
[20:11] Daniel Roccanti: It is very important that our listeners understand that if you’re gifting highly appreciated property, you really need to think that one through. Is that the right choice? Because you may be helping an estate planning problem but creating an income tax planning problem. That’s definitely something you want to think twice about.
[20:32] Daniel Roccanti: So let’s wrap this up, Kyle, and go over, as CPAs, what we’re looking at and talking with our clients about. What do we usually need before the end of the year? A lot of it is what we just talked about. For a lot of my clients right now, I’m looking at what you bought this year and what you sold. I need to know your buys. I need to know your sells.
[20:52] Daniel Roccanti: You should be talking to your CPA when it happens or before it happens. But worst case scenario, I need to know what happened. I can’t do the cost seg, I can’t talk about the 1031 exchange and I can’t do any of this if I don’t know about it. So it’s really important, and I’d usually like a copy of the closing statements when they happen. That way, I don’t have to ask for them later on.
[21:14] Daniel Roccanti: I want to know exactly what they are. Second, I’m looking into major renovations and improvements. It’s very important that you understand the difference between a repair and an improvement. And if it is an improvement, what type of improvement it is, because that decides whether I can take 100% bonus depreciation or have to spread it out over an extremely long period of time.
[21:41] Daniel Roccanti: When we talk to our clients, we really want to dig into these renovations so we can get the most advantageous tax consequence for you. And again, it has to be in service. It’s not the date you pay your contractor. If I’m doing a huge renovation that really isn’t in service until January, then unfortunately I can’t start taking my depreciation deduction, even though I had to pay my contractor up front.
[22:08] Daniel Roccanti: So that’s really important. Next, cost segregation studies. We talked about the timing of being placed in service, but I want to go one step further. You don’t have to get your cost seg study during the year. You can wait until after year-end. But if you wait until tax season, so did everyone else.
[22:08] Kyle Paxton: That’s a great point.
[22:08] Daniel Roccanti: If you know you’re getting a cost segregation study, I tell all my clients, “Go ahead and do it now.” All the cost seg study providers have plenty of time right now. They’re sitting around twiddling their thumbs. So get it done. One, you’re going to get a better price. I’m just going to be honest with you.
[22:49] Daniel Roccanti: You’ll get a better price and you’ll get it much quicker. So if you’re going to do a cost segregation study and you already know the property is in service before the deadline, don’t wait until the end of the year. Go ahead and get it done while there’s a lot of time.
[23:04] Daniel Roccanti: If you start asking for a cost segregation study in March, the cost segregation team might turn around and say, “We’re not going to be able to get this to you until May or June.” Then you’re going to have to extend your return.
[23:04] Kyle Paxton: We talked about 1031 exchanges. Now’s a great time to make sure we’re well set up if we’re crossing year-end, along with entity structuring and ownership changes.
[23:31] Kyle Paxton: A lot of the challenges we see with our real estate investors in the tax world are around investor relations. It’s things as simple as getting the address updated on the K-1. I finish tax returns in March, but now I’m getting requests in September for updates on things that happened in 2025, effectively looking a full year back.
[24:02] Kyle Paxton: So now’s a really good time to update your cap tables and investor logs and make sure all the information is current. One of the beautiful things about real estate and how it operates on the calendar year is that, barring catastrophe, you should have very few surprises leading up to year-end. In October, you know what deals are likely going to close before year-end.
[24:22] Kyle Paxton: You know which deals have no shot at closing before year-end. You know if any deals are even in the works. You know what rental income is likely going to look like. We have a good pulse on what 2026 is going to be right now. It’s the same kind of conversation as the cost segregation study timing. If we’re trying to get K-1s out to our investors on time, we can do 80% of the tax return right now.
[24:50] Kyle Paxton: We can get everything set up so that once we get our year-end close done, we’re good to go. That means getting your bookkeeping updated through October, or whatever the current month is, and having a conversation with your CPA about where the results are currently and what we need to do before year-end to make sure we’re optimized for tax purposes. That goes back to the conversation on retirement plans and what we need to do to get those set up before year-end. Maybe you can
[25:18] Kyle Paxton: fund these plans in the spring, but we need to get them set up before year-end, so make sure you’re out in front of that. And of course, estimated tax payments. We’re through quarter three by the time this video is released, so make sure you’ve been proactive about paying any tax liability to reduce underpayment penalties.
[25:36] Kyle Paxton: The last thing I want to emphasize again is gifts. We didn’t really talk about charitable gifts, the gifts to charity that do generate tax benefits, assuming you meet all the thresholds. Those and family gifting need to happen before December 31st.
[25:58] Kyle Paxton: Like I said, as part of our annual tax work, we can do most of this right now. Let’s get set up so we have a smooth spring.
[25:58] Daniel Roccanti: I also want to add one thing on the bookkeeping side. I’ve said this in other videos before, but it’s very important.
[26:19] Daniel Roccanti: Your bookkeeping needs to be up to date. If your books are six months behind, they’re of little to no value when it comes to planning. I can’t project and I can’t plan. So it’s important that your bookkeeping is up to date, or only one month behind, so I have relevant information we can use for planning.
[26:39] Daniel Roccanti: It’s the whole foundation of your business. It’s not only important for tax planning. If you don’t have updated books, how do you know how your business is doing? How do you know if your property is cash flowing or performing the way it should? Bookkeeping also needs to be up to date because you don’t want a huge rush in January.
[27:00] Daniel Roccanti: No one wants to come back from New Year’s and spend the entire first month trying to get their books up to date in time for us to prepare the return so your investors can get their K-1s. If you’re doing it more timely, you’re saving yourself time in January and creating a much easier process for all of us. So don’t just hand us the books in March and hope you got great tax planning.
[27:23] Daniel Roccanti: That’s just compliance at that point. Make sure your books are up to date. It’s better for you, it’s better for us and it’s going to be better for your investors. You’ve got to have good data to work from. It’s an important part of year-end tax planning.
[27:23] Kyle Paxton: Daniel, I’ve got a call to action before you close us out.
[27:45] Kyle Paxton: Our office is closed the last week of December. Most of the world feels like it shuts down, but everyone’s trying to pack in those last-minute tax planning items. Before that last week of December, and we’re in October now, go ahead and send your CPA the transactions that changed this year: acquisitions, sales, refinances, major improvements, any 1031 plans and any desire or need for entity changes. Then sit back and ask the question: what do we need to do, and what do we lose the ability to do after December
[28:14] Kyle Paxton: 31st? Now is the time. Let’s get it done. Take us out, Daniel.
[28:14] Daniel Roccanti: Thanks for listening. Hopefully this gives you a little bit of an advantage this year. We’re trying to give our real estate investors at least two months of lead time on year-end tax moves. If you like what we have, please subscribe and listen to us next time.
[28:33] Daniel Roccanti: Have a good one.
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Most of the moves Daniel and Kyle covered get harder, or disappear entirely, after December 31. Watch the full episode on the Your CPA’s Take on Real Estate YouTube channel and subscribe for more real estate tax planning from a CPA’s point of view.
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