December 31 Isn’t the Finish Line
A lot of people hit January 1 assuming there are no tax moves left to make for the prior year.
The year ended, the tax bill is what it is, you feel like you’ve missed all opportunities for tax planning…
Sound familiar? While most tax strategies are proactive and do depend on what happened before year-end, there are still strategies that are available in the new year.
That’s not to say post-year-end planning should be the goal. Ideally, these conversations happen well in advance, with plenty of time to strategize and plan ahead. Planning in Q1 for the prior year is not preferred, but can offer some last-minute tax savings in the right situations..
One of the most impactful and most misunderstood examples is cost segregation. The timeline to successfully complete a cost segregation study is more flexible than you may think.
Thought you missed your window? Cost segregation deadlines aren’t as rigid as most investors assume. If you’re unsure whether it still applies to your situation, this is a good time to ask before filing.
Cost Segregation in the New Year
Cost segregation is one of the most commonly misunderstood post–year-end strategies we see.
Many investors assume that if they didn’t complete a cost segregation study by the end of the year, the opportunity is gone. In reality, the timing doesn’t work that way.
If you are aiming to do a cost segregation for a property you purchased in the prior year or before, the study can be completed any time before the tax return is filed.
That’s good news for investors who thought they were too late. If this is you, get the ball rolling sooner rather than later. Don’t assume the window is closed when it isn’t.
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Missing the End of the Year Doesn’t Eliminate the Strategy
Not completing a cost segregation study before December 31 does not disqualify you from benefitting from it.
In some situations, waiting until after year-end to get the study is the better strategic move.
If it’s clear that an investor will materially participate in the activity, completing the study before year-end makes the most sense because there is little to no doubt that the study will result in immediate tax benefit, and you can deduct the cost of purchasing the study in that year. But when material participation is uncertain, especially for properties purchased late in the year, rushing the study can create more problems than it solves.
In those cases, it’s better to close out the year first to finalize time logs, review material participation, and confirm all criteria were met before proceeding with the cost segregation study.
Catch-Up Depreciation for Prior-Year Properties
Cost segregation also isn’t limited to properties placed in service during the year you’re filing for.
If a property was placed in service in a prior year, a cost segregation study can still be beneficial using Form 3115 to catchup on prior depreciation. This allows “missed” depreciation to be claimed in the current filing year without amending prior returns.
Timing is important here. If you’re filing a return for the current tax year, catch-up depreciation applies to properties placed in service before that year.
For example, if you’re filing a return for 2025, catch-up depreciation would apply to properties placed in service in 2024 or before.
Properties placed in service during the year being filed simply require a cost segregation study, no Form 3115.
It’s easy to confuse what “this year” actually means during filing season – make sure your timeline aligns with strategic and filing deadlines.
Who Does Cost Segregation Still Apply To
Cost segregation can still make sense for a wide range of investors, including those who:
- Purchased and materially participated in an STR
- Qualify for real estate professional status (REPS)
- Investors who assumed the window had closed because they missed the purchase year
- Have passive income and a passive real estate portfolio
- Have higher income than expected
If you’re unsure if a cost segregation makes sense for you, contact us.
There are a lot of moving parts, and taxes can already be a pain, but that’s why we’re here!
Why Waiting Can Be Costly (Even If It’s Still Allowed)
Even though cost segregation can be done after year-end, waiting too long into the new year can limit your options.
An engineered cost segregation study typically takes 4 to 6 weeks to complete. Because the study must be finished before the return is filed, delaying the decision can push back your filing timeline, force you to file an extension, or delay your refund
And once a return is filed, the only way to add cost segregation is through an amended return or Form 3115 in a future year.
If cost segregation is something you may benefit from, starting earlier gives you more flexibility, both in how the strategy is implemented and when your return can be filed.
Other Tax Strategies That May Still Be Available
Outside of cost segregation, there are a few limited strategies that may still be available after year-end. These are not broad planning tools, and they won’t apply in every situation, but they’re often the last remaining levers during filing season.
Solo 401k and Other Self-Employed Retirement Plans
Some self-employed retirement plans can still be funded for the previous year after the year’s over, as long as contributions are made before your tax return is filed. This includes extensions.
The amount you’re allowed to contribute depends on final net income, which is why these decisions are typically made after books are closed. Contributing before those numbers are finalized can lead to incorrect or excess contributions.
IRA and HSA Contributions
IRA and HSA contributions can be made up until April 15.
For IRAs, the impact is often limited and may not result in a current-year deduction depending on income levels. HSAs, when available, remain one of the few tools that can still reduce taxable income this late in the process.
These strategies are supplemental. They can help at the margins, but they rarely move the needle the same way that proactive planning does.
What This Means as Tax Filing Season Approaches
Tax preparation is not when you save taxes; that happens proactively throughout the year. By the time January arrives, the number of available tax strategies is severely limited.
Some strategies are still on the table, others are only available if specific deadlines haven’t passed. Now is the time to identify the strategy that still makes sense and coordinate that with your CPA before filing.
Common Mistakes to Avoid
As filing season moves forward, we tend to see the same issues come up:
- Failing to proactively tax plan throughout the year.
- Assuming it’s too late and doing nothing at all.
- Waiting too long to implement strategies (even last minute ones) creates unnecessary pressure around filing deadlines.
- Rushing into cost segregation without confirming material participation can force an extension or, even worse, cause the strategy to fall flat.
Overall, the earlier you have conversations about tax strategies with your CPA, the more options you’ll have.
Conclusion
The end of the year isn’t the end of your tax planning, but it shouldn’t be the beginning either.
Once the calendar flips, tax planning shifts from proactive strategy to understanding what’s still available and how to leverage the remaining options. For the right investors, cost segregation remains one of the most impactful tools that can still be used after year-end, provided it’s handled correctly and on time.
And if you’re unsure whether cost segregation or any post–year-end strategy still applies to your situation, that’s the right place to start the conversation. Contact us here.
