Tax Strategy
Real Estate & Investment Tax Strategy
Key Takeaway
Real estate investors who structure their portfolios for tax efficiency — through cost segregation, 1031 exchanges, opportunity zones, and entity planning — keep significantly more of their investment returns.
Real Estate Investors Pay Too Much in Tax Because They Don’t Plan.
Between depreciation recapture, capital gains, passive activity rules, and the 3.8% Net Investment Income Tax, real estate investors face a complex web of tax obligations. Without proper planning, a profitable investment can lose a significant portion of its returns to taxes.
The tax code provides powerful tools for real estate investors — 1031 exchanges, cost segregation, opportunity zones, and real estate professional status — but each requires careful planning and legal implementation to be used effectively.
We work with real estate investors, developers, and portfolio managers to structure acquisitions, operations, and dispositions for maximum tax efficiency. Every decision — from entity structure to depreciation method to exit strategy — has tax consequences we help you optimize.
From Our Practice
Talk to a Tax Attorney
Free 15-minute call. No obligation. We’ll tell you exactly where you stand.
What We Do
Real Estate Tax Services
1031 Exchanges
Defer capital gains and depreciation recapture on property sales by exchanging into like-kind replacement property. We structure exchanges that meet all IRS timing and identification requirements.
Cost Segregation
Accelerate depreciation by reclassifying building components into shorter-lived asset categories. Our cost segregation analyses typically generate first-year deductions of 20-40% of the purchase price.
Opportunity Zone Investments
Invest capital gains in qualified opportunity zones to defer, reduce, and potentially eliminate tax on appreciation. We identify qualifying investments and structure compliant deals.
Real Estate Professional Status
Qualifying as a real estate professional unlocks the ability to use real estate losses against ordinary income. We help you meet the requirements and document your hours.
Entity Structuring
LLC vs. LP vs. S-Corp for real estate holdings — the right entity structure depends on liability protection, tax treatment, and estate planning goals. We design structures optimized for all three.
Disposition Planning
When it’s time to sell, we plan the exit — 1031 exchange, installment sale, charitable remainder trust, or outright sale — to minimize your tax bill.
How It Works
Real Estate Tax Strategy: Explained
How does a 1031 exchange work?
Section 1031 allows you to defer all capital gains and depreciation recapture when you sell investment property and reinvest the proceeds in like-kind replacement property. You have 45 days to identify replacement properties and 180 days to close — strict deadlines that require advance planning.
We structure 1031 exchanges from start to finish, ensuring compliance with all IRS requirements and coordinating with qualified intermediaries.
What is cost segregation and is it worth it?
Cost segregation reclassifies components of a building (electrical, plumbing, fixtures, paving) from 27.5 or 39-year depreciation to 5, 7, or 15-year categories. Combined with bonus depreciation, this can generate massive first-year deductions.
For a $1M commercial property, cost segregation typically generates $200,000-$400,000 in accelerated depreciation — resulting in $60,000-$120,000+ in first-year tax savings depending on your bracket. It’s almost always worth it.
What is real estate professional status?
Normally, rental income is passive — losses can only offset other passive income. But if you qualify as a real estate professional (750+ hours and more than half your working time in real estate activities), you can deduct rental losses against your ordinary income — including W-2 wages and business income.
This status is extremely valuable for high-income households where one spouse manages real estate full-time. We help you meet the requirements and maintain documentation that survives IRS audit.
Should I use an LLC for my rental properties?
Almost always yes — but the specific structure matters. Single-member LLCs for individual properties provide liability protection. Multi-member LLCs or limited partnerships can facilitate co-ownership and estate planning. Holding companies can centralize management and protect equity across a portfolio.
We design entity structures that balance tax efficiency, liability protection, and operational simplicity.
Talk to a Tax Attorney
Not Sure Where You Stand?
or call (619) 378-3138
Why Brotman Law
Tax Strategy Built for Real Estate Investors
Real Estate Focus
Real estate taxation is a core practice area. We understand depreciation, passive activity rules, and the full range of investor strategies.
Attorney-Led Implementation
1031 exchanges, entity formation, and operating agreements require legal execution. We handle the entire process.
Acquisition to Disposition
We plan tax strategy from the day you buy through the day you sell — optimizing every phase of ownership.
Audit-Ready Documentation
Every strategy we implement is documented to withstand IRS examination. We’ve defended real estate investors in dozens of audits.
Portfolio-Level Thinking
We don’t optimize one property — we optimize your entire portfolio for maximum after-tax returns.
Developer Experience
We’ve worked with developers on ground-up construction, conversion projects, and large-scale commercial transactions across California.
Learn More
Real Estate Tax Guides & Resources
Tax Strategies
Explore our library of real estate and investment tax planning strategies.
Read the Guide →Free GuideExit Planning
Planning to sell your real estate portfolio? Structure the exit for maximum tax savings.
Read the Guide →Free GuideBusiness Tax Optimization
Real estate businesses benefit from both property-level and entity-level tax planning.
Read the Guide →Frequently Asked Questions
Real Estate Tax FAQs
Is a 1031 exchange worth the complexity?
For most investment property sales, absolutely. Deferring $100,000+ in capital gains and depreciation recapture tax allows you to reinvest the full proceeds and compound returns over time. The complexity is manageable with experienced counsel.
Can I do a 1031 exchange on my primary residence?
No — 1031 exchanges apply only to investment or business property. However, Section 121 provides a separate exclusion of up to $500,000 in gain on primary residence sales. In some cases, properties that have been both investment and personal use can benefit from both provisions.
What properties qualify for cost segregation?
Any commercial property, rental property, or building used in a trade or business. Properties purchased, constructed, or renovated in the current or recent years benefit most from cost segregation due to bonus depreciation rules.
How do opportunity zones work in 2026?
You can still invest capital gains in qualified opportunity zone funds to defer recognition. The original deferral benefit (basis step-up) has partially expired, but the exclusion of gain on the opportunity zone investment itself remains available for investments held 10+ years.
Should both spouses be involved in real estate for REPS?
Only one spouse needs to qualify as a real estate professional. However, both spouses’ real estate activities can be counted on a joint return if the qualifying spouse materially participates in the rental activities.
Do you work with out-of-state real estate investors?
Yes. We represent real estate investors with properties across the country. While we’re based in San Diego, real estate tax strategy applies regardless of where the property is located. We coordinate with local counsel when state-specific issues arise.
As Featured In & Recognized By
GET STARTED TODAY
Book Your Free 15-Minute Call
Schedule a brief call with our team to discuss your situation. We’ll assess where things stand and outline your options — confidentially and without obligation.
- Completely confidential — protected by attorney-client privilege
- Every situation is different — you’ll receive a custom assessment tailored to yours
- Same-day and next-day appointments available