Real Estate Tax Benefits

I spoke to an operator last week (who owns 9-figures of real estate) about his focus in 2025. Here’s what we talked about: 1) Historic Tax Credits. 2) Opportunity Zones. Him and I have been diving deep into both opportunities. Here’s some takeaways from our conversation: (& my research) 1) Historic Tax Credits (HTCs) - The operator is selling an asset that could use Historic Tax Credits. - HTCs are meant to encourage developers to keep historical sites. - HTCs provide up to a 20% federal tax credit. - (Even some local municipalities provide their own HTCs) - Instead of reducing your taxable income. - It reduces your actual tax liability. For example, if you invest $10,000,000 into the qualified rehabilitation of a certified historic property, the Federal Historic Tax Credit (HTC) program can provide a 20% tax credit - meaning you could reduce your federal tax liability by $2,000,000. It’s an incredible opportunity for the right investor. BONUS: These credits can be based onto LP’s within a real estate investment offering. 2) Opportunity Zones. - The operator and I spoke about what to expect with the One Big Beautiful Bill. - And more specifically, how opportunity zones are affected. - Here’s what to know: - Opportunity Zones are now permanent, and won’t expire in 2026. - Rolling 5-year deferral gives investors more time and flexibility to defer taxes. - Rural OZ projects now qualify for up to 30% capital gains tax reduction. P.S. What’s your experience with HTCs & Opportunity Zones?

𝗛𝗼𝘄 𝘁𝗼 𝘀𝗮𝘃𝗲 €𝟭𝟭,𝟬𝟬𝟬 𝗶𝗻 𝘁𝗮𝘅𝗲𝘀 𝗽𝗲𝗿 𝘆𝗲𝗮𝗿 𝘄𝗵𝗶𝗹𝗲 𝗯𝘂𝗶𝗹𝗱𝗶𝗻𝗴 𝗹𝗼𝗻𝗴-𝘁𝗲𝗿𝗺 𝘄𝗲𝗮𝗹𝘁𝗵? 🇩🇪 German tax law now rewards energy-efficient real estate investors, especially those buying in the Berlin outskirts. Thanks to the 2024 Sonder-AfA update, eligible new-build properties now qualify for: • 5% special depreciation (Sonder-AfA over 4 years) Standard 5% degressive depreciation = 10% total annual depreciation on building value (decreasing over time) That's real tax money back in your pocket. And it gets better: land can't be depreciated, so lower land prices (e.g., Zossen at €125/sqm vs. Berlin at €4,200/sqm) mean higher effective depreciation. More write-offs. More tax savings. 𝗘𝘅𝗮𝗺𝗽𝗹𝗲: Purchase price: €250,000 Fees (tax + notary): €20,000 Land share: €15,000 = Depreciable amount: €255,000 For singles with a gross income > €100K/year and a 47% marginal tax rate:  • Annual depreciation: €25,500  • Annual tax refund: €11,985 That's nearly €12K/year back in your pocket for four years and nearly 50K over 10 years. Combine that with 95% financing, repayment-free KfW funding, and rental income, and you're looking at IRRs over 20%. Here's a live scenario: • Equity invested: €35,000 • Net profit after 10 years: €119,000 • IRR: 20.49% 𝗥𝘂𝗻 𝘆𝗼𝘂𝗿 𝗼𝘄𝗻 𝗻𝘂𝗺𝗯𝗲𝗿𝘀: https://lnkd.in/d3kj2EPe ------------------------------------------------------------------------------- Hey, I’m Nick Mulder 👋 Founder of Hypofriend, Germany’s leading online mortgage broker helping expats and locals buy homes across Germany. Based in Berlin. Topics: German mortgages, buying property in Germany, Berlin real estate, home financing, and interest rates. Follow for more ↗️

The 1031 Exchange: Why Are So Many Family Offices Still Missing This? Each year, we conduct the largest Family Office real estate investing study in the country. And every year, one statistic continues to stand out: around 80 percent of Family Offices have never executed a 1031 exchange. That number is hard to ignore. Especially when the 1031 exchange remains one of the most effective tools for deferring capital gains tax in real estate. So why are so many families sitting this one out? A properly executed 1031 exchange allows real estate owners to defer capital gains tax by reinvesting the proceeds from a sale into another like-kind property. This deferral can be repeated again and again, effectively rolling gains forward through each transaction. Eventually, if the assets are held until death, the heirs receive a step-up in basis to the current market value. That means the unrealized gains disappear from a tax standpoint, and no capital gains tax is ever paid on those increases. In other words, it is one of the few structures that rewards long-term planning and multigenerational thinking. There are a few consistent reasons we hear from families who have avoided the 1031 exchange: 1. Lack of awareness. Some families simply haven’t been exposed to the mechanics or long-term value of the strategy. 2. Complexity. The rules and timelines around 1031 exchanges can feel restrictive, especially when a sale is moving quickly. 3. Limited planning. Too often, families are focused on the immediate transaction rather than a multi-transaction strategy that supports long-term wealth preservation. These are all addressable with the right education and advisors in place. The 1031 exchange is not just a tax strategy. It is a long-term planning mechanism that aligns perfectly with the goals of capital preservation and intergenerational wealth transfer. When used correctly, the benefits compound over time. Deferred taxes remain invested, growth accelerates, and estate planning becomes significantly more efficient. Every Family Office that owns real estate should understand how a 1031 exchange works. More importantly, they should have a clear plan for when and how to use it. Ignoring this tool leaves value on the table and creates unnecessary tax exposure.

There’s a more tax-efficient way to own an index. But is it worth it? Here’s a breakdown of direct indexing: What is direct indexing? It’s still passive investing. But instead of owning an index fund, you own the individual stocks that make up the index. Same market exposure. Different implementation. The goal isn’t higher returns. The goal is tax efficiency. Index funds are already very tax-efficient, especially ETFs. But there’s one thing they can’t do: They can’t pass individual stock losses to investors. Losses inside a fund stay inside the fund. With direct indexing, you own each stock directly. That allows for: Ongoing tax-loss harvesting Offsetting capital gains Deferring taxes while staying invested Over time, this can increase after-tax wealth even if pre-tax returns are similar. Some studies suggest direct indexing can add incremental after-tax value over long periods (often cited at 1%–2%), but results vary widely based on volatility, tax bracket, cash flows, and implementation. Important tradeoffs to understand. This strategy is not a free lunch. Here’s what actually matters. 1) Cost Most platforms charge roughly 0.10%–0.20%. But additional costs may include: Trading costs Cash drag Tracking error Etc. These reduce the net benefit and must be weighed against expected tax savings. 2) New money works best Selling existing index funds to switch strategies often creates taxes that wipe out the benefit. Direct indexing tends to work best with new dollars, such as: Income Liquidity events Sale or acquisition proceeds Using fresh capital avoids unnecessary tax friction. 3) Tax benefits depend on markets The biggest advantage comes from harvesting losses, which requires volatility. In prolonged bull markets: Losses become harder to find Unrealized gains accumulate Tax benefits shift from harvesting losses to deferring gains, and eventually decline. 4) Wash sale coordination matters Loss harvesting must be coordinated across taxable accounts, spousal accounts, and any index funds held elsewhere. Poor coordination can reduce or eliminate the benefit. 5) You need an exit strategy Deferred taxes eventually come due unless there’s a plan. Is this money for retirement, charity, heirs (step-up in basis), or future liquidity? Direct indexing works best when paired with broader tax and estate planning. 6) Benefits skew toward higher earners The tax alpha is largest when tax rates and taxable balances are high. For lower brackets or smaller portfolios, added cost and complexity may outweigh the benefit. Bottom line Direct indexing isn’t a magic upgrade. It’s a tax optimization tool. For the right investor, at the right time, with the right plan, it can add meaningful after-tax value. For others, a low-cost index fund may be the better answer. That’s why this should be a planning decision, not a product pitch. If you’re exploring it, talk with a fee-only planner to see if it actually fits your situation.

If you sell a house and simply pay capital gains tax – you’re missing out on a powerful wealth-building opportunity. You can either burn it once… or put it back into the engine and let it take you further. Smart investors don’t “spend” capital gains. They reinvest them. There are multiple options available under the Income Tax Act that allow you to defer or completely save tax, while also keeping your wealth in motion: ✅ Section 54 – Reinvest the LTCG into another residential property (within specific timelines) ✅ Section 54F – Invest the entire sale consideration in a new residential property (ideal if the original asset sold was NOT a residential house) ✅ Section 54EC – Invest the capital gain in specified bonds (NHAI/REC) within 6 months of transfer. This is not just about “reducing tax liability”. It’s about allowing your money to continue compounding. It’s about keeping your financial momentum alive. In the wealth game – it’s not just about making gains. It’s about protecting them… and deploying them wisely. #FinancialPlanning #RealEstate #TaxSavings #InvestWisely #CapitalGain

Most founders will hand the IRS millions at exit. Not because they have to. Because they didn’t plan. Here’s what Qualified Small Business Stock (QSBS) changes: Section 1202 allows founders to exclude up to $10M in capital gains from federal taxes when selling qualified stock. Zero tax on: - Capital gains - Net Investment Income Tax (3.8%) - Alternative Minimum Tax But here’s the catch most founders miss: You need to file an 83(b) election WITHIN 30 DAYS of receiving restricted stock. This starts your 5-year holding period clock immediately, even before your shares vest. Miss this deadline, and you could lose millions in tax savings. The 3 critical requirements: → Your company must be a domestic C-Corp → You must hold the stock for 5 years minimum → Gross assets under $50M at issuance ($75M for stock issued after July 4, 2025) Example: A founder with a $2M basis could potentially exclude up to $20M in gains (the greater of $10M or 10x your basis). Always work with your Tax Advisor! Are you planning your exit strategy with QSBS in mind?

₹26 Crore Capital Gain. Zero Tax. Legally. A recent ITAT Kolkata ruling has reinforced an important principle under Section 54F. A taxpayer sold listed shares and earned ~₹26 crore in long-term capital gains. She invested in the construction of a residential house and claimed exemption under Section 54F. The department denied it on three grounds: • She allegedly owned more than one residential house • Construction had begun before the date of sale • Sale proceeds were not directly used for construction The Tribunal rejected all three objections. Key takeaways: 1️⃣ Joint ownership of a house does not amount to exclusive ownership for disqualification under Section 54F. 2️⃣ Vacant land with a tenant-constructed factory is not a “residential house.” 3️⃣ Construction need not begin after the date of transfer. The law only requires completion within 3 years. 4️⃣ There is no requirement that the exact sale proceeds must be directly utilised for construction. Result: ₹26 crore exemption allowed. Tax demand deleted. The larger lesson? Tax planning within the framework of law is not tax evasion. Interpretation matters. Documentation matters. Substance matters. When you comply with the conditions, the law protects you.

One Big Beautiful Bill – What CRE Investors Need to Know Congress just passed the One Big Beautiful Bill (“OBBB”) — and love it or hate it, the implications for commercial real estate are real. As someone advising multifamily investors and developers every day, here’s my take on what matters most for our sector: - 100% Bonus Depreciation Restored Immediate write-offs on property improvements = stronger after-tax returns, better cash flow, and a compelling reason to upgrade or reposition assets. - Permanent 20% QBI Deduction Pass-through owners (LLCs, LPs, S-corps) get to keep more of what they earn—critical for syndicators, family offices, and developers. - Estate Tax Exemption Raised to $15M+ Smooth generational transfers are now easier to structure, especially for operators with long-hold strategies or growing portfolios. - Higher SALT Cap (but income-limited) Investors in high-tax states like Massachusetts get partial relief—but the benefits phase out above $400K MAGI. - Clean Energy Tax Credit Rollbacks Some solar and green-building incentives were pulled back—making it important to reassess the ROI on sustainability strategies. - Deficit Spending = Interest Rate Risk While tax relief is welcome, deficit pressure may fuel upward movement in cap rates. Staying ahead on financing strategy is essential. Takeaways to CRE investors right now: • Time improvements to maximize bonus depreciation • Consider pass-through structures to unlock QBI benefits • Proactively plan estate transfers while the window is open • Recalculate IRRs for green building projects post-credit rollback • Lock in long-term debt before rates catch up to fiscal policy If you’re actively acquiring, recapitalizing, or preparing for generational ownership transition—this bill changes the math. What are your thoughts? #cre #capitalmarkets

Ways the Big Beautiful Bill Will Impact CRE Investors Bonus Depreciation Beyond extending the 2017 cuts, the bill brings back 100% bonus depreciation, allowing owners to write off the full cost of their assets. With bonus depreciation back we will see more improvements that incentivize better buildings, a higher quality of life for users, and more flexibility for investors that use a value-add strategy. This is a cornerstone of the tax bill for the CRE world. Deductions First, the QBI deduction which was passed in 2017 is set to expire at the end of 2025, but this new legislation makes it permanent. This significantly increases the return owners see on their investments, while also supporting the income of businesses that lease and utilize commercial real estate. This naturally frees up capital for new development, business expansion, new hiring and property upgrades. Second, an increase to the SALT deduction cap will provide investors in high-tax states like California and New York a way to lower their Federal tax bill. This will free up capital for investors operating in the places that were hardest hit by the pandemic, helping aid the rejuvenation of some of America’s most iconic cities. Opportunity Zones and Industrial Focus The bill expands and makes permanent the wildly successful opportunity zones policy from the 2017 bill. The new legislation also allows developers in rural zones to access the tax benefits of renovations at a lower threshold, lowering the financial requirement to qualify from 100% of investment cost to just 50% in rural opportunity zones. This will foster rehabilitation of small towns across the country. The bill also creates an entirely new category of assets called Qualified Production Properties. When building a manufacturing plant or modern warehouse that qualifies you can deduct the entire cost of the project immediately. These policies will do more to grow American manufacturing than any trade policy will. 1031 Exchange Rules Preserving 1031 exchanges allows investors to shift strategies and transact freely in the marketplace. Estate Taxes This bill raised the floor on the estate tax to $15 million. With the threat of a massive estate tax bill removed for many families, investors are encouraged to hold onto their properties for the long term. Spending Provisions The bill also invests $12.5 billion to modernize the nation’s FAA air traffic control systems. This upgrade boosts efficiency at major airports, directly increasing the value and long-term viability of the critical logistics properties.

Let's discuss a 𝐫𝐞𝐚𝐥 𝐥𝐢𝐟𝐞 𝐭𝐚𝐱 𝐩𝐥𝐚𝐧𝐧𝐢𝐧𝐠 when a client who 𝐛𝐨𝐮𝐠𝐡𝐭 an old 𝐡𝐨𝐮𝐬𝐞, demolished it, and built a new one to generate 𝐫𝐞𝐧𝐭𝐚𝐥 𝐢𝐧𝐜𝐨𝐦𝐞. Let's discuss how smart planning helped a client save thousands in taxes. Mr. A bought an old house with the plan to 𝐝𝐞𝐦𝐨𝐥𝐢𝐬𝐡 it and 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐜𝐭 𝐚 𝐧𝐞𝐰 𝐫𝐞𝐧𝐭𝐚𝐥 𝐩𝐫𝐨𝐩𝐞𝐫𝐭𝐲. But here’s where the 𝐭𝐚𝐱 𝐢𝐬𝐬𝐮𝐞 comes in. Suppose the 𝐩𝐮𝐫𝐜𝐡𝐚𝐬𝐞 𝐩𝐫𝐢𝐜𝐞 of the property was $𝟑𝟎𝟎,𝟎𝟎𝟎. According to the county records, $𝟔𝟎,𝟎𝟎𝟎 was allocated to 𝐥𝐚𝐧𝐝 and $𝟐𝟒𝟎,𝟎𝟎𝟎 to the 𝐛𝐮𝐢𝐥𝐝𝐢𝐧𝐠. Later, Mr. A spent $𝟓,𝟎𝟎𝟎 on 𝐝𝐞𝐦𝐨𝐥𝐢𝐭𝐢𝐨𝐧 and $𝟏𝟓𝟎,𝟎𝟎𝟎 on 𝐧𝐞𝐰 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐜𝐭𝐢𝐨𝐧. Now, under IRS rules, when a building is demolished, the 𝐞𝐧𝐭𝐢𝐫𝐞 𝐛𝐚𝐬𝐢𝐬 of the 𝐨𝐥𝐝 𝐛𝐮𝐢𝐥𝐝𝐢𝐧𝐠 ($𝟐𝟒𝟎,𝟎𝟎𝟎) plus the demolition cost ($5,000) gets added to the 𝐥𝐚𝐧𝐝 𝐛𝐚𝐬𝐢𝐬. That means the 𝐥𝐚𝐧𝐝 𝐛𝐚𝐬𝐢𝐬 becomes $𝟑𝟎𝟓,𝟎𝟎𝟎, which is non-depreciable. The new 𝐛𝐮𝐢𝐥𝐝𝐢𝐧𝐠 𝐛𝐚𝐬𝐢𝐬 would only be $𝟏𝟓𝟎,𝟎𝟎𝟎. This creates a problem. The $240,000 of the old building is lost for 𝐝𝐞𝐩𝐫𝐞𝐜𝐢𝐚𝐭𝐢𝐨𝐧 purposes. Ideally, that amount should have been depreciated to 𝐫𝐞𝐝𝐮𝐜𝐞 𝐭𝐚𝐱𝐚𝐛𝐥𝐞 𝐢𝐧𝐜𝐨𝐦𝐞. Instead, it 𝐠𝐞𝐭𝐬 𝐥𝐨𝐜𝐤𝐞𝐝 into the land value, which provides no tax benefit. But there is a smarter way to plan. Instead of demolishing immediately, Mr. A could 𝐟𝐢𝐫𝐬𝐭 𝐮𝐬𝐞 the old building as a 𝐬𝐡𝐨𝐫𝐭-𝐭𝐞𝐫𝐦 𝐫𝐞𝐧𝐭𝐚𝐥 (𝐒𝐓𝐑) for 𝐨𝐧𝐞 𝐲𝐞𝐚𝐫 with cost segregation. This would allow him to claim 𝟏𝟎𝟎% 𝐛𝐨𝐧𝐮𝐬 𝐝𝐞𝐩𝐫𝐞𝐜𝐢𝐚𝐭𝐢𝐨𝐧 on approx $𝟏𝟐𝟎,𝟎𝟎𝟎 𝐛𝐮𝐢𝐥𝐝𝐢𝐧𝐠 value in the first year itself after doing cost seg study. At a 37% tax rate, that creates tax savings of about $𝟒𝟒,𝟒𝟎𝟎. With this approach, the 𝐥𝐚𝐧𝐝 𝐛𝐚𝐬𝐢𝐬 ends up at $𝟏𝟖𝟓,𝟎𝟎𝟎 ($60,000 original land + $5,000 demolition + $120,000 old building that could not be fully depreciated), while the 𝐛𝐮𝐢𝐥𝐝𝐢𝐧𝐠 𝐛𝐚𝐬𝐢𝐬 is $𝟏𝟓𝟎,𝟎𝟎𝟎 for the new construction. Plus, he already claimed the $𝟏𝟐𝟎,𝟎𝟎𝟎 𝐛𝐨𝐧𝐮𝐬 𝐝𝐞𝐩𝐫𝐞𝐜𝐢𝐚𝐭𝐢𝐨𝐧 in the first year. This simple timing strategy allowed Mr. A to 𝐜𝐚𝐩𝐭𝐮𝐫𝐞 𝐝𝐞𝐝𝐮𝐜𝐭𝐢𝐨𝐧𝐬 that otherwise would have been 𝐥𝐨𝐬𝐭, turning a potential tax trap into a big tax-saving opportunity. 𝐍𝐨𝐭𝐞: Always check with your tax advisor to see if this strategy works for your situation. #ustax #ustaxation #uscpa #cpa #learning #taxseason #cpafirm #cpafirms