Imagine making millions of dollars over the course of your career and then having to pay 30-50% every year to uncle sam instead of compounding that cash over time.
This is exactly what real estate professionals have learned to mitigate.
To reduce their taxable income, they just buy a building every year, do a cost seg, and use depreciation to reduce their tax liability dramatically.
Their personal wealth snowball grows much larger and much faster than their W2 counterparts who give most of their money back to the government each year.
Following this strategy as a real estate professional is one of best ways to end up with a much larger net worth at the end of your career.
Dr · VA · Member since 2025 · 154 posts · 34 votes
10mo
However, upon the sale of the property, the previously claimed depreciation reduces the adjusted basis, resulting in depreciation recapture that may increase the taxpayer’s taxable gain. In contrast, if the property is passed to heirs, the heirs generally receive a step-up in basis to the property’s fair market value at the date of death, effectively eliminating prior depreciation and minimizing potential recapture.
Accountant · West Jordan, UT · Member since 2017 · 180 posts · 95 votes
11mo
Melanie, great outline! Please remind your readers, to consult with a tax strategist who specializes in in real estate. There are lots of those pesky, "IT DEPENDS" things happening.
Melanie, thank you for the information. I’m new to real estate and have heard a lot about the great tax advantages, interested to learn more. Is there ever a scenario where it’s possible to pay no taxes through owning commercial real estate?
Dr · VA · Member since 2025 · 154 posts · 34 votes
10mo
However, upon the sale of the property, the previously claimed depreciation reduces the adjusted basis, resulting in depreciation recapture that may increase the taxpayer’s taxable gain. In contrast, if the property is passed to heirs, the heirs generally receive a step-up in basis to the property’s fair market value at the date of death, effectively eliminating prior depreciation and minimizing potential recapture.
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
10mo
Melanie, like Janet said above this is such a great breakdown of something that can actually be hard and complex for many to understand.
Many people recognize the opportunity in real estate because it’s one of the few investments that tends to appreciate over time, but what often gets overlooked is the business side of it. The real beauty of real estate is that you can benefit from appreciation while also using depreciation to reduce your taxable income.
Other powerful concepts many investors miss include strategically timing capital gains to be offset, leveraging 1031 exchanges, and using creative financing strategies to keep your portfolio growing.
And like Janet mentioned, it really depends on several moving parts, your other income sources, where you are in your investment journey, and what other investments or businesses you have. That’s why it’s so important to consult a specialist early on and keep clean, detailed books from the start.
Thanks so much for your breakdown on this and happy to connect with both of you.
Accountant · West Jordan, UT · Member since 2017 · 180 posts · 95 votes
10mo
Rohullah, Contributors are sharing GEMS of wisdom. Recapture catches many unwary investors by A SAD SURPRISE.
Stepped-up basis is another Gem. Especially for folks in line for an inheritance or for those of us who are 'mature' and considering liquidation of some of our assets.