As 2025 wraps up and investors start positioning themselves for 2026, there’s one group that consistently wins: those who take December seriously.
Real estate has some of the most powerful tax advantages in the U.S. tax code — but they only work if you plan ahead.
This guide breaks down smart, legal, end-of-year strategies Arizona investors are using right now to reduce taxable income, boost long-term wealth, and set up a stronger acquisition year in 2026.
Important disclaimer: I am not a CPA, tax attorney, or financial advisor. This post is for general informational purposes only. Always consult a qualified tax professional before making tax-related decisions.
1. Run a Year-End Cost Segregation Analysis (Even if You’re Not Doing a Full Study Yet)
Many investors think cost segregation only makes sense on larger commercial buildings — but that’s outdated thinking.
A cost segregation feasibility review in December can tell you:
- How much bonus depreciation you can still take under current rules
- Whether you should accelerate a 2026 study into 2025
- Whether a late-year purchase could produce meaningful paper losses
- Whether timing a BRRR refinance in January vs December changes tax positioning
Even a simple feasibility report (not the full study) can help your CPA create an optimized strategy before year-end.
Perfect for:
- Short-term rental owners
- Small multifamily owners
- Investors planning a BRRR refinance in Q1 2026
2. Make Last-Minute Repairs Instead of Improvements
Repairs are typically fully deductible in the year completed. Improvements, however, must be capitalized and depreciated.
December is a perfect time to knock out:
- HVAC service
- Roof patching
- Smart lock replacements
- Safety updates (GFI, smoke detectors, railings)
- Minor plumbing fixes
- Touch-up painting
These small repairs reduce taxable income in 2025 and keep your properties in rent-ready condition going into 2026.
3. Prepay Select Expenses if It Makes Sense for Your Tax Bracket
This is one of the easiest year-end moves — and most investors overlook it.
If you expect to be in a higher tax bracket this year than next, you can potentially reduce 2025 taxable income by prepaying certain expenses:
- Insurance premiums
- Property management costs
- Advertising
- HOA dues
- Professional fees
- Software and tech subscriptions
- Landscape or pool service contracts
Not all expenses qualify for prepayment deductions, so always confirm with your CPA.
4. Harvest Losses in Your Portfolio to Offset Big Gains
If you sold an investment property this year — or a high-growth stock — you could have capital gains exposure.
Look for opportunities to strategically sell losing assets to balance those gains.
Real estate-specific opportunities include:
- Selling underperforming land you no longer plan to develop
- Selling notes or partial interests in partnerships
- Closing out bad STR furniture or equipment assets
This is a powerful, legal strategy — especially when combined with installment sale structuring on a 2025 property sale.
5. Consider a December Closing to Accelerate Depreciation
If you’re planning to buy early next year, consider pulling the trigger in December instead.
Why?
Because you can depreciate the full year even if you buy in December, as long as it’s placed in service before year-end.
For cash-flow buyers and BRRR investors, this can mean:
- A year of depreciation
- Bonus depreciation (if applicable)
- Additional expenses associated with acquisition
- Potential partial-year repairs deduction
This strategy is especially valuable for W2 earners who qualify as real estate professionals or short-term rental owners who materially participate.
6. Max Out Your Retirement Vehicles (Especially Self-Directed Options)
If you’re using real estate to build long-term wealth, pairing it with the right retirement account can supercharge your strategy.
Self-directed options allow you to use retirement dollars to invest in:
- Land
- Notes
- Partnerships
- Rentals
- Private lending
Many investors forget the year-end contribution deadlines.
Even if you’re not investing through an SDIRA yet, setting one up in December prepares you for 2026 opportunities.
7. Evaluate LLCs & Entity Restructuring Before 2026
The cost to form (or adjust) an LLC is small compared to the long-term benefits of:
- Liability protection
- Streamlined bookkeeping
- More efficient tax reporting
- Easier partnership structuring
Arizona has straightforward LLC rules — and December is a great time to review:
- Whether certain properties should be split into separate entities
- Whether you’re due for an S-Corp election
- Whether a holding company structure makes sense for 2026 expansion
8. Re-evaluate Your Depreciation Schedules
December is the ideal time to work with your CPA to confirm:
- Your depreciation schedules are accurate
- Any disposed assets were removed
- 2025 improvements are properly categorized
- Expensing elections (like Section 179) were properly applied
You’d be surprised how many investors overpay taxes because of bad or outdated depreciation schedules.
9. Review Your 2025 Bookkeeping to Avoid Early 2026 Headaches
Your January self will thank you if you clean things up now.
Confirm:
- All receipts are categorized
- Mileage logs are complete
- Home office deductions are properly supported
- Capital expenditures are cleanly separated from repairs
- All partnership distributions and draws are recorded
Clean books = fewer tax errors, lower CPA bills, and better audit protection.
Final Thoughts: December Is Where Smart Investors Win
Phoenix, Tucson, and the surrounding Arizona markets continue to attract investors nationwide — but those who pair strong acquisitions with smart tax planning build wealth dramatically faster.
If you’re preparing for a big investing year in 2026, these end-of-year strategies can help you enter January with:
- Lower taxable income
- Stronger financial footing
- Better access to capital
- A clearer acquisition roadmap
And remember:
I’m not a tax professional, and you should always verify strategy with a CPA — especially when it involves depreciation, entity structure, or major financial moves.
If you’d like help identifying year-end opportunities or planning your investment strategy for 2026, I’d be happy to help.
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