Real Estate Tax Strategy
Depreciation, 1031 exchanges, cost segregation, and real estate professional status. The tax strategies that make real estate investing work.
“Real estate investors love three things: cash flow, appreciation, and telling you about their depreciation deduction at dinner parties.”
What you'll learn
Depreciation is your best friend. Residential property depreciates over 27.5 years, commercial over 39. A $500k rental property generates ~$18k/year in depreciation deductions, sheltering cash flow from taxes.
Cost segregation accelerates depreciation. A study reclassifies components (roofing, flooring, fixtures) as 5/7/15-year property instead of 27.5. Can generate massive first-year deductions. Worth it for properties over $500k.
1031 exchange: sell a property, buy another of equal or greater value within 180 days, defer all capital gains tax. Unlimited repeats. Estate tax loophole: heirs get stepped-up basis, wiping out the deferred gain entirely.
Real Estate Professional Status (REPS): if you spend 750+ hours/year and >50% of your working time in real estate, rental losses are no longer 'passive' — they offset your regular income. Difficult to qualify, powerful if you do.