Skip to main content

Real Estate Tax Hub

Strategies, guides, and free downloads to help real estate investors minimize taxes — from 1031 exchanges and opportunity zones to cost segregation and depreciation.

Free Guides Talk to a CPA →
1031 Exchange
Defer capital gains indefinitely
OZ
Opportunity Zones
Cost Seg
Accelerate depreciation
Free Downloads

Real Estate Tax Guides

Practical, CPA-prepared guides on the tax strategies real estate investors use most.

Free Guide
9 Things to Consider Before a 1031 Exchange

Before you execute a 1031 exchange, there are critical decisions that can make or break your tax savings. This guide walks through nine key considerations — from qualified intermediary selection and identification rules to boot, debt, and depreciation recapture implications.

  • 45-day identification & 180-day closing rules
  • What counts as "like-kind" property
  • How boot triggers taxable gain
  • Depreciation recapture considerations
  • Reverse and improvement exchanges
Download Free Guide
Free Guide
1031 Exchange vs. Opportunity Zone — Compared

Two of the most powerful tax deferral strategies in real estate — but they work differently and suit different investors. This side-by-side comparison breaks down the mechanics, benefits, risks, and ideal use cases for each strategy so you can decide which fits your situation.

  • How each strategy defers capital gains
  • Eligible asset types for each
  • Holding period requirements
  • Exit strategies and step-up rules
  • Which strategy wins for your tax bracket
Download Free Guide

Key Real Estate Tax Strategies

The tax code rewards real estate investors more than almost any other asset class. Here are the strategies our CPA team uses most often.

1031 Exchange

Sell investment property and defer all capital gains taxes by rolling proceeds into a like-kind replacement property within 180 days. Can be chained indefinitely — taxes may never come due.

Opportunity Zones

Invest capital gains from any asset into a Qualified Opportunity Fund. Hold for 10+ years and gains on the new investment are permanently excluded from federal tax.

Cost Segregation

Reclassify building components to 5-, 7-, or 15-year depreciation — dramatically front-loading deductions. Combined with bonus depreciation, this can generate six-figure write-offs in year one.

REPS Status

Real Estate Professional Status lets qualifying investors use rental losses against W-2 and business income — turning passive losses into active deductions against your highest-taxed income.

1031 Exchange

The Mechanics of a 1031 Exchange

A properly executed 1031 exchange lets you sell investment property and defer 100% of your capital gains — federal, state, and depreciation recapture — by reinvesting into a replacement property of equal or greater value.

Day 0
Close on the sale. Proceeds go directly to a Qualified Intermediary (QI) — you never touch the funds. The 1031 clock starts the moment you close.
Day 45
Identify replacement property. You must identify up to 3 properties in writing to your QI by midnight on Day 45. No extensions — not even for weekends or holidays.
Day 180
Close on the replacement. The QI transfers funds directly to the seller. To defer all gain, you must reinvest all equity and replace any debt retired. Any cash received ("boot") is taxable.
Download the 1031 Guide
1031 Exchange — What Gets Deferred
All three tax components are deferred — not forgiven, but postponed until you sell without exchanging
Long-Term Capital Gains
Federal rate on property appreciation
0–20%
Depreciation Recapture
Section 1250 unrecaptured gain
25%
Net Investment Income Tax
For high-income earners (AGI > $200K/$250K)
3.8%
California State Tax
No preferential CA rate on gains
up to 13.3%
Total Combined Rate (CA Top Bracket)
~42%+

1031 Exchange vs. Opportunity Zone

Both strategies defer capital gains — but they work differently. Understanding the distinction is critical before you decide.

1031 Exchange
Opportunity Zone
Eligible Assets
Real property only
Any capital asset (stocks, RE, business)
What's Deferred
All gain from the sold property
Original gain only (new gain excluded)
Gain Recognition
Upon final sale (or death = step-up)
Dec 31, 2026 (original gain); never (new gain if held 10+ yrs)
Time to Invest
180 days from sale
180 days from gain recognition
Best For
Investors who want to stay in real estate long-term
Investors willing to commit capital for 10+ years
Download Full Comparison Guide

Cost Segregation

A cost segregation study breaks down a property's purchase price or construction costs into components that depreciate faster than the standard 27.5 or 39 years — think flooring, fixtures, landscaping, and personal property.

Properties valued at $500K+ see the strongest ROI
Look-back studies available — no amended returns needed
Combined with bonus depreciation for maximum year-one deductions
Works on residential rentals, commercial, and mixed-use
Learn More →

Real Estate Professional Status (REPS)

Under default IRS rules, rental losses are passive and can only offset passive income. REPS qualification removes that limitation — letting you use rental losses to directly offset W-2 wages, business income, or other active income.

REPS Qualification Requirements
✓  More than 750 hours/year in real estate activities
✓  Real estate = more than 50% of your total work hours
✓  Material participation in each rental activity (or grouping election)
Real Estate Investors →

Frequently Asked Questions

A 1031 exchange allows real estate investors to defer capital gains taxes by reinvesting the proceeds from a sold property into a like-kind replacement property. You have 45 days to identify a replacement and 180 days to close. A Qualified Intermediary must hold the funds throughout — you cannot receive the proceeds directly. Exchanges can be chained indefinitely, and heirs receive a stepped-up basis at death, potentially eliminating the deferred tax entirely.

A 1031 exchange defers gain from selling real property and requires reinvestment into like-kind real estate. An Opportunity Zone investment can defer gain from any capital asset — stocks, real estate, business interests — and requires investment into a Qualified Opportunity Fund. With a 1031, you defer taxes until you sell without exchanging (or eliminate them at death). With an OZ held 10+ years, new investment gains are permanently excluded — often the more powerful long-term outcome.

Cost segregation reclassifies building components from 27.5- or 39-year depreciation to 5-, 7-, or 15-year schedules — dramatically front-loading deductions. Investors who benefit most own or recently purchased a property worth $500,000 or more and pay taxes at upper brackets. A look-back study can recover missed depreciation on properties held for years without amending prior returns.

By default, rental losses are passive and can only offset passive income. Real Estate Professional Status (REPS) changes that — allowing losses from rental activities to offset W-2 wages, business income, and other ordinary income. To qualify, you must spend more than 750 hours per year in real estate activities, and real estate must represent more than half of your total work hours. REPS can turn a rental portfolio into a six-figure deduction against your highest-taxed income.

No. A 1031 exchange requires the property be held for investment or use in a trade or business — not primarily for sale. Flip properties are considered dealer property and don't qualify. Flip income is also taxed as ordinary income rather than capital gains. If you're transitioning a potential flip into a rental, holding period and demonstrated intent both matter — consult a CPA before making decisions.

When you sell a rental property, the IRS recaptures previously claimed depreciation and taxes it at up to 25% (Section 1250 recapture) — on top of capital gains tax. Strategies to minimize it include: (1) a 1031 exchange to defer both gain and recapture, (2) an Opportunity Zone investment to defer the original gain, (3) holding until death for a stepped-up basis, or (4) an installment sale to spread recapture across multiple tax years.

Ready to Build a Real Estate Tax Strategy?

Whether you're planning a 1031 exchange, evaluating an opportunity zone, or looking to maximize depreciation — our CPA team specializes in real estate tax strategy for LA-area investors.

Schedule a Free Consultation →