The IRS recently released updated guidelines for the 2024 tax year. Some of the most well-known standards shifted to account for inflation – the consensus being that these changes would mean more money in the pockets of Americans.
But what exactly has changed, and what special considerations are there for real estate investors? Here’s the rundown.
4 IRS Changes to the 2024 Tax Year
Inflation adjustments are common IRS tweaks. This year, it’s reported that the standards will shift at a rate of 5.4%, smaller than the 7% last year but still higher relative to the average. This further confirms that inflation rates are slowing, returning a measure of economic stability to our nation.
1. Tax Bracket Increase
While there are no new tax brackets to consider for 2024, the income threshold for each bracket will increase. The thought behind these changes is to prevent Americans who received an inflation-compensating pay bump from getting pushed into a higher tax bracket. It means you’ll be able to shelter progressively more from a higher tax rate next year.
Let’s take a look.
2. The Standard Deduction
Taxable income can be lowered by taking a standard deduction or itemizing deductions on your returns. While itemized deductions are technically unlimited (and unchanged from years past), they demand diligent record-keeping, take more time to catalog, and are exposed to greater scrutiny than the default standard deduction.
However, investors often have many deductions to itemize based on their ongoing expenses. With that said, you can compare your past deductible line items with the new standard deduction to see which will give you the greater benefit:
3. Long-Term Capital Gains
Perhaps most pertinent to real estate investors are the changes in tax rates for long-term capital gains. If you sell a property, you’re subject to capital gains taxes on your profit. (Short-term gains include properties owned for under a year, while long-term gains apply to ownership over a year.)
Here’s how the rates will change for 2024:
These new capital gains rates may help investors who stand to make more money off the sales of properties as real estate valuations rise. Remember, these amounts reflect profit, not the property’s total sales price. It’s the amount beyond the original purchase price. Anyone looking to sell real estate has more wiggle room on their tax rates if they sell next year.
Of course, investors can defer capital gains taxes through various investment strategies, including a 1031 Exchange or by investing through a self-directed IRA.
4. Exclusion Thresholds
A few tax provisions changed beyond these tax brackets and deduction thresholds. Two tax exclusions also shifted: gift tax and estate tax. For gifts, the amount rose so that individuals can give up to $18,000 (per person) without filing a gift tax return.
Additionally, the estate tax exclusion rose. Next year, estates valued at or under $13.6 million won’t be subjected to estate tax.
These changes may or may not impact you, or the effects may be marginal. Still, the tax arena provides real estate investors some significant benefits. It’s far better to be abreast of changes and as knowledgeable as possible, even as you utilize the expertise of tax professionals and CPAs.
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