Bob FraserCFO & Macro Strategist | Data-Driven Investing Expert | Speaker & Author

How to make my real estate investments tax-efficient #realestate #investing

Name: How to make my real estate investments tax-efficient #realestate #investing
Uploaded: 2024-11-18T20:26:29+00:00
Duration: 46 s
Channel: Bob Fraser
Description: In this segment, the speaker outlines why a real‑estate investor might choose a 1031 exchange, emphasizing its low cost, simplicity for CPAs, and the…

18 Nov 2024 · 1 min

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In this segment, the speaker outlines why a real‑estate investor might choose a 1031 exchange, emphasizing its low cost, simplicity for CPAs, and the ability to preserve a stepped‑up basis so heirs can inherit property without capital‑gains tax. He then explains the primary downside: the old depreciation schedule transfers to the new property, which can be problematic if the original asset is fully depreciated. To illustrate, he cites a client with a $14 million property generating $500 k of cash flow that has exhausted its depreciation. The speaker proposes a workaround: first partner the property with a trust, then move the proceeds into a newly formed LLC, allowing the purchase of a new property that starts with a fresh depreciation schedule, thereby resetting tax benefits.

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Here's a reason why I would do a 1031. A, would you have bought the property anyways, Ben? That's the first thing. Yeah, I would have bought it either way. B, the 1031 is cheaper. There's no ongoing recurring fees. Like, your CPA knows it in his sleep. It's really simple, right? And 3, you get to maintain what's called the stepped-up basis, right? Which is important because upon death, the basis steps up. Your kids can walk away capital gains tax-free. But let me tell you real quickly why you wouldn't do it, okay? Number 1, you have an old depreciation schedule. So in a 1031, the old depreciation schedule travels. And so an example of a client I'm working with, he has about a $14 million real estate property. It's producing about $500,000 of cash flow right now. He has no depreciation. It's fully depreciated. First, you partner with the trust, and then once the money's in the trust that owes you, the money in the trust can go into a new LLC and you can buy a new property at the fresh depreciation schedule.