Year-End Tax Planning for Real Estate Investors: The Mistakes We See Most

This article is based on Tal Binder's conversation with Ash Patel on the Best Ever Show from Best Ever CRE. Tal is the founder and CEO of Gelt. General education, not tax advice. Figures reflect the 2026 tax year.

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Most real estate investors start thinking about taxes in late October. Ash Patel admitted as much: "We wait till the last minute." Year-end tax planning for real estate investors still has moves left in Q4, but the decisions that matter most get made months earlier, starting with how the property is held.

Why your rental probably doesn't belong in an S corp

Ash hears it constantly: investors whose LLCs "roll up into an S corp," who can't explain why. "My CPA set it up and it seems to be working." For property you hold, Tal's answer is usually no S corp. Three reasons:

• Debt doesn't count toward your basis. In a partnership, your share of the mortgage generally adds to your tax basis. In an S corp it doesn't. Buy an office with $200,000 down and an $800,000 loan, and your S corp basis may still be about $200,000. Refinance later and pull cash out, and distributions above that basis can be taxed as capital gains.
• Getting the property out is a taxable event. Move the building out of the S corp and the IRS treats it as sold at fair market value. Ash's reaction: "Hell no."
• One class of stock. Distributions follow ownership percentage, period. No preferred return for the partner who put in more money early.

An S corp still makes sense for active income, like a practice or property management company, where it can reduce self-employment tax. "Think about an S corp as a tool, not a goal," Tal said. (More on the operating side in our guide to taking money out of an S corporation.) And every extra entity adds prep and bookkeeping cost each year. If your deal model leaves that out, it overstates your return.

Should your practice own its building?

Physicians and attorneys who buy their office face a choice. Keeping the building inside the practice lets cost segregation and bonus depreciation offset practice income directly. Splitting it out brings in the self-rental rules, which have become very nuanced.

Gelt still usually recommends a separate entity. It limits liability, avoids the S corp basis problem, and keeps your options open. Sell part of the practice in ten years and you don't want the buyer owning part of your building, or a taxable event to pull it out. Many owners want to keep collecting rent after they sell. That only works cleanly if the building was never inside the practice.

Estimated taxes when you own real estate

Rental income has no withholding, so estimated taxes are on you. The last 2026 payment is due January 15, 2027. To avoid an underpayment penalty, pay in 110% of last year's tax (100% if your prior-year AGI was $150,000 or less) or 90% of this year's.

Miss a payment and the IRS charges a penalty that works like interest, at 7% annualized for Q4 2026. Tal's point: sometimes keeping the cash is a reasonable trade if your liability may drop later in the year. Make that call with your CPA, not by forgetting. Our guide to quarterly estimated taxes has the details.

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Placed in service by December 31, or it doesn't count

A Q4 purchase only reduces this year's taxes if it's placed in service before December 31. For a rental, that generally means rental-ready and available for rent. Then a cost segregation study can break out components eligible for bonus depreciation, which is back at 100% for property acquired after January 19, 2025.

Ash learned this the hard way. Around Christmas, facing a big gain, he bought about $1 million of semi-trucks and trailers from a friend's tree business. He wired the money before December 31, but the trucks weren't in service by year-end, so the deduction didn't land.

Tal described the better version: depreciation follows the asset's cost, not your cash in. Put $100,000 down, finance $900,000, get the equipment in service during the year, and you can generally depreciate the full $1 million. Ash's verdict on his own move: "poor planning, last-minute panic, and a bad decision." And Tal's rule: only buy what you'll actually use.

A low-income year can be a Roth conversion year

Depreciation and real estate professional status can push taxable income far below what you actually earned. Last year, a Gelt client in that spot converted about $100,000 from a traditional IRA to a Roth at a fraction of their usual rate. As Gelt CPA Rachel Richards puts it, "What tends to be bad for life is good for taxes, and what tends to be good for life is bad for taxes."

Plan in the summer, not in December

Tal's advice is to do real planning between May and August, when your CPA has time and you can still decide whether to buy, wait, or sell. December is when investors buy into syndications on a promised depreciation percentage or start businesses purely for write-offs. "Nothing is free," Tal said. Know the trade-off in time and money first. And whatever else you do, keep clean books and never underreport revenue. In an audit, documentation is what wins.

Frequently asked questions

Should I put my rental property in an S corp?

Usually not. S corp shareholders don't get basis from the entity's mortgage debt, moving property out is treated as a sale at fair market value, and S corps allow only one class of stock. Most investors hold rentals in LLCs taxed as partnerships or disregarded entities.

Does buying a rental property in December reduce this year's taxes?

Only if it's placed in service before December 31, which for a rental generally means ready and available for rent. Closing on it isn't enough.

Can I take bonus depreciation on property I financed?

Generally yes. Depreciation is based on cost basis, which includes the financed portion. Bonus depreciation is 100% for qualifying property acquired after January 19, 2025, and placed in service during the year.

What is the safe harbor for estimated taxes?

Pay in at least 110% of last year's tax (100% if prior-year AGI was $150,000 or less) or 90% of this year's tax. The final 2026 payment is due January 15, 2027.

Plan the next move before the year ends

There's still time to place property in service, check your estimates, and line up a Roth conversion if your income is low. Best Ever listeners can learn more on our Best Ever CRE page, or talk to a Gelt strategist about your portfolio.