"Smart investing isn’t about racing the calendar, it’s about making deliberate decisions that align with your strategy. Year-end deals might offer tax perks, but consistent, year-round returns can bring peace of mind and lasting growth."

Rise Capital Investments

Why Are Investors Scrambling to Purchase Property Before December 31 Every Year?

As the holiday season unfolds, it's not just last-minute shoppers rushing to meet deadlines. In the world of real estate, an end-of-year scramble is common as investors seek to close deals before the clock strikes midnight on December 31. But what drives this urgency? What are the benefits of making a move before the year ends, and is it really necessary for everyone? This article explores why many investors feel the rush while also considering why some, such as private lenders and passive investors, may not need to follow the seasonal frenzy.

Holiday Hustle: Tax Benefits That Drive Year-End Buying

For active real estate investors and private equity participants, the last few months of the year represent a critical time to maximize tax benefits and position their portfolios for the upcoming year.

The Holiday Hustle only sounds like a new dance, but it's nothing so fun as that. It's about the crazy and stressful dance investors do at the end of every calendar year to offset gains by purchasing new properties for depreciation, often during the slowest business time of the year. Imagine trying to not only find a good deal on a time crunch but to get the closing team to settle before December 31st or pay potentially thousands or more in taxes. That uncertainty easily ruins attempting to relax with loved ones on December 25th!

Here are the main reasons behind the deal close hurry, and why most years we don't feel the need to join in the craziness.

1. Maximizing Depreciation Benefits: The Ultimate Holiday Write-Off

One of the biggest drivers behind the end-of-year rush is the opportunity to maximize depreciation deductions. When you acquire a property before December 31, the IRS allows you to claim a full year’s worth of depreciation on your tax return—even if you only owned the property for a few days. This helps reduce taxable income for the current year and sets the stage for better returns in the year ahead. Think of it as getting a last-minute gift from the IRS.

Example: Suppose you purchase a $1 million property on December 29. Despite owning it for just a few days, you can still take advantage of depreciation as if you owned the property for the entire year. This significant deduction can lower your tax bill and improve your cash flow.

2. Wrapping Up 1031 Exchanges Before the New Year (and Why We Skip Them)

A 1031 exchange allows investors to defer capital gains taxes by reinvesting the proceeds from a sold property into a similar investment. This tax-deferral strategy is attractive, but it comes with strict deadlines: the investor must identify a new property within 45 days of selling the original property and close on it within 180 days.

When the 45-day identification period lands in the fourth quarter, investors often feel the pressure to completing the exchange within the same tax year to simplify tax reporting and helps avoid potential complications with the IRS when carrying the exchange over into the next calendar year. This pressure isn't always warranted because the ability to cross over tax deferral to the next calendar year is a major benefit of a 1031 exchange, buying time for properties sold late in the year.

There are also times when it might make more sense to opt-out of using a 1031 exchange altogether. If an investor is in a high-income year or anticipates higher income in the coming year, they might prefer to acquire a new property outright to benefit from the depreciation deductions immediately. Purchasing a property by December 31 allows the investor to take a full year’s worth of depreciation for that tax year, which can significantly reduce their taxable income. In some cases, this immediate depreciation benefit outweighs the long-term tax deferral of a 1031 exchange.

Opting out also frees up the investor to go into joint ventures or other syndications in a different entity than the one that just sold the property, opening up many more opportunities including more passive opportunities.

Choosing not to use a 1031 exchange has been a strategic decision for us. We’ve never done a 1031 or reverse 1031 exchange, preferring instead to use the depreciation offset method to reduce our taxable income well in advance of the end of the year by planning ahead. In our case, it works well because we usually have significant losses either from the current year or carry forward losses from prior years to offset any gains. One of the only situations where we might consider a 1031 exchange would be if we had a year with minimal losses and were selling a property in the fourth quarter of that same year.

The cost and administrative burden of using a 1031 custodian, combined with strict timelines for identifying and closing on a replacement property, along with restrictions on entity structure and the requirement to reinvest the entire proceeds—not just the gains—make the process less appealing. For us, it often feels like the flexibility we give up isn’t worth the potential tax deferral.

However, a 1031 exchange might make sense for many investors depending on factors such as timing, cash flow needs, or the desire to consolidate holdings. Both strategies should be weighed carefully, especially in year-end tax planning, to determine which is the better fit for offsetting high taxable income while positioning your portfolio for the coming year.

3. Year-End Business Expenses and Deductible Repairs

For active investors, the holiday season is a prime time to finalize business expenses, such as repairs, improvements, and closing costs on new properties. By purchasing in November or December, investors can leverage immediate repairs or upgrades as deductions for the current tax year, reducing their overall tax burden. For those using a value-add strategy, this is especially beneficial, as they can deduct costs associated with significant renovations aimed at boosting the property’s value.

Adding to the urgency is the phasing out of bonus depreciation, which has allowed investors to accelerate deductions on qualified property improvements. Previously at 100%, bonus depreciation is now being reduced incrementally each year. As it declines, the ability to immediately write off a large portion of asset costs diminishes, driving investors to make the most of these higher deductions before the percentage drops further. This change adds pressure to close deals and complete qualifying expenditures before year-end to maximize tax benefits while they still last!

Why Private Lenders Don’t Face the Same Year-End Rush

While active real estate investors are racing to meet these deadlines, private lenders—those who provide short-term loans for real estate projects—don’t experience the same sense of urgency.

There is no doubt that depreciation from direct property ownership as either a GP or LP has supercharged our own wealth journey. Here’s why we still choose to add private loans as major strategy in our overall investing plan despite not having obvious tax advantages. Both approaches, real estate equity and real estate debt, have a place in a holistic portfolio.

1. No Direct Ownership Means No Depreciation Rush

Since private lenders are not directly purchasing properties, they don’t benefit from depreciation-related tax advantages that incentivize others to close deals before December 31. Their income comes from interest rather than rental income or property appreciation, meaning they can lend capital at a steady pace throughout the year without worrying about year-end deadlines.

As private lenders, we typically earn consistent returns through interest income, often in the 10-12% range for short-term real estate loans. Because these returns are not affected by property ownership tax benefits, lenders enjoy steady cash flow throughout the year without needing to rush to secure year-end deals. It's a bit like enjoying the warmth of a cozy holiday fire while others are braving the cold in the race to get things done.

2. Less Exposure to Seasonal Market Fluctuations

Unlike those who may worry about market conditions or year-end tax rules, private lenders focus on the borrower's ability to repay. Our investments are centered around the loan's terms rather than property acquisition timelines. This means we are less concerned with seasonal trends and can maintain lending activities year-round.

We don’t feel pressured to rush into deals just to save money on taxes, which gives us the breathing room to be selective about the properties we buy or invest in passively. The stress of rushing often leads to overspending in an effort to reduce taxable income, and the sheer volume of 1031 exchanges at year-end can distort asset pricing across the market. Instead, we prefer to employ other tax-saving strategies that ensure we’re buying for the right reasons and at the right price.

3. Enjoy the Benefits of Depreciation Without the Last-Minute Stress

One of the advantages of passive real estate investing is that syndicators or fund managers handle the acquisition timeline and tax strategies. Passive investors still receive the benefits of depreciation through K-1 tax forms issued by the syndication or fund. In other words, they can enjoy the tax advantages without feeling pressured to personally close deals before the year ends, passing that responsibility on to the fund managers, and allowing passive investors to spend more time enjoying the holiday season.

4. Focus on Diversification Instead of Timing the Market

Tax strategy is a major benefit of investing in depreciating real estate, but the unintended consequence is often scrambling to get involved in a year-end deal. Instead, we should prioritize diversifying their portfolio to hedge against risks as a comprehensive plan.

Investing in funds that emphasize cash flow and value-add projects can offer stable returns regardless of the time of year. It’s like spreading out holiday gift spending across several months instead of splurging all at once in December.

5. Staying Cool With a Self-Directed IRA

For investors using self-directed IRAs, the urgency to close deals by year-end to maximize depreciation benefits is much less relevant. While depreciation is a powerful tax-saving tool for properties held outside of retirement accounts, self-directed IRAs cannot directly take advantage of depreciation. This is because the income generated within an IRA is typically tax-deferred or tax-free (in the case of a Roth IRA), meaning depreciation can't be used as double tax savings. Depreciation does not provide the same tax relief benefits on capital gains inside an SD IRA as it does for assets held in taxable accounts.

Instead, investors using self-directed IRAs focus on other advantages, such as tax-deferred growth and the ability to diversify into alternative investments like real estate or private loans. This flexibility removes the pressure of year-end deadlines to lock in depreciation. By removing the rush to close deals before December 31, investors can be more selective and deliberate, ensuring investments are made based on quality and long-term potential rather than immediate tax benefits.

The addition of self-directed IRAs in our strategy means we can keep our portfolios balanced between interest-bearing investments inside an IRA to reduce taxes, and depreciation investments outside an IRA. We can focus on securing the best opportunities for growth, rather than feeling pressured by tax deadlines.

Final Thoughts: To Rush or Not to Rush?

For active real estate investors, the benefits of closing deals before year-end are clear—taking advantage of depreciation, navigating 1031 exchanges, and writing off business expenses, and scooping up bonus depreciation can significantly reduce taxes. However, if you’re a private lender or a passive investor, you don’t necessarily need to join the seasonal scramble. Understanding your role and choosing your timing strategically can help you achieve your goals without the stress of a December 31 deadline. Timing is important, but smart investing is about making decisions that fit your strategy, not just the calendar.

Holiday Greetings from Rise Capital

At Rise Capital, we recognize that not everyone wants to rush to close deals at the end of the year, and that's why we offer investment options that deliver consistent, year-round returns without the holiday frenzy. Our approach as private lenders focuses on short-term loans with predictable income, allowing our investors to enjoy peace of mind while still meeting their financial goals.

Whether you're ready to invest now or are planning ahead for the new year, we’re here to help you make smart, steady progress. It takes the pressure off finding that occasional outstanding equity deal with depreciation that can come along at any time of year.