Year-End Real Estate Tax Tips for San Francisco Homeowners and Investors
As the end of the year approaches, it’s a great time to revisit your real estate investments and take advantage of tax-saving opportunities. San Francisco, with its unique real estate market and high property values, offers several ways to maximize tax benefits if you know where to look. Here are essential tax tips for homeowners and investors in San Francisco to consider before closing out the year.
1. Check for Property Tax Deductions
- Property taxes can be deductible on federal income taxes up to a certain limit. The Tax Cuts and Jobs Act of 2017 limits state and local tax (SALT) deductions, including property taxes, to $10,000 per year. Although this cap affects many high-value properties in San Francisco, it’s still a valuable deduction for many homeowners. Consult a tax professional to confirm how much of your property taxes can be deducted.
- Resource: For more information on property tax deductions, visit IRS - Deductions for Property Taxes.
2. Capital Gains Exclusion on Primary Residences
- Homeowners who have lived in their primary residence for at least two out of the last five years may qualify for the capital gains exclusion. This allows single filers to exclude up to $250,000 and married filers up to $500,000 of capital gains from the sale of their home. If you’re thinking about selling, timing is key—ensure you meet the residency requirement before year-end to avoid paying unnecessary taxes on your sale profits.
- Resource: Learn more on the IRS website about Capital Gains Exclusion.
3. Accelerate or Delay Home Improvement Expenses
- If you plan to make significant improvements on your property, think strategically about the timing. Improvements can increase the cost basis of your property, reducing capital gains taxes when you sell. In high-appreciation markets like San Francisco, this can make a big difference. Consult a tax expert to decide whether making these improvements before year-end is the right move for your tax situation.
- Tip: Certain upgrades, like installing solar panels, may also qualify you for federal tax credits. Learn more about energy efficiency credits at Energy.gov.
4. Take Advantage of Depreciation on Rental Properties
- For rental property owners, depreciation is a powerful tool. Depreciation allows investors to deduct the cost of the property over 27.5 years, even as its market value might be increasing. Ensuring all eligible property improvements are accurately documented is crucial for taking full advantage of this benefit. If you own a rental property, be sure your records are up-to-date before year-end.
- Resource: Find detailed guidance on Rental Property Depreciation at TurboTax.
5. Use a 1031 Exchange for Investment Property
- A 1031 Exchange allows real estate investors to defer capital gains taxes when they reinvest the proceeds from the sale of an investment property into a new like-kind property. For San Francisco investors looking to upgrade or diversify their portfolios, this is a valuable strategy. However, 1031 Exchanges come with strict timelines, so act soon if you want to close before the year ends.
- Resource: Learn more on 1031 Exchange rules at Investopedia.
6. Track Mortgage Interest Deductions
- Mortgage interest on loans up to $750,000 is tax-deductible for most homeowners. If you refinanced your mortgage in the past year, make sure to track both the original and refinanced interest payments. Also, keep an eye on loan origination fees and points, which might qualify as deductible costs. The deduction is especially helpful for San Francisco homeowners with higher property values.
- Resource: For specifics, review the Mortgage Interest Deduction guidelines on the IRS website.
As always, consulting with a tax professional familiar with San Francisco’s real estate market is advisable. They can offer personalized insights based on your financial goals and help you make the most of these tax-saving strategies. Whether you’re a homeowner or an investor, maximizing tax benefits can be a powerful way to improve your financial standing before heading into the new year.
Resources for More Information:
- IRS - Homeowners Tax Information
- Nolo - Guide to Taxes for Homeowners and Investors
- San Francisco Assessor-Recorder’s Office - Property Taxes
Taking the time to optimize your real estate tax strategy now can set you up for long-term savings.
When it comes to buying or selling in areas like San Francisco (Marina, Pacific Heights, Cow Hollow), Charles Jacob is your trusted partner. With expert market knowledge and a commitment to exceptional service, he can help you find answers to all your questions. Get in touch with Charles Jacob today to step into the exciting San Francisco market.
