Tax-Saving Investments

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.

A reduction in the CGT discount from 50% to 25% for investment in residential property won’t be as bad as many investors fear. The reason is that when the CGT discount goes down (bad), the benefit of delaying realization of capital gains goes up (good). Much of the harmful effect of decreasing the CGT discount is undone by the increased benefit of delay in realization of the capital gain. I made a video with examples to fully explain. https://lnkd.in/gRNkbkFV The effective tax rate on any investment is the percentage of the investment’s return taken by the government over the life of the investment. The effective tax rate is reduced by both the CGT discount and the delay in the realization of CGT. If the realization is delayed a long time (such as in property investment) then the effective tax rate is substantially reduced. The diagram shows an example. For an investor who’s equity in a property grows at 10% per year (because they have borrowed to invest), and who sells the property after 30 years, the effective tax rate is only 9%. The before-tax return is 10%, but after-tax it is 9.1%. The ATO gets 9% of the before-tax return. The CGT discount reduces the investor’s tax rate from 47% to 23.5%. Then the delay further reduces it to 9%, which is the effective tax rate. If the CGT discount is reduced to 25% in our example, then the discount reduces the tax rate from 47% to 35.25%. The delay then reduces it to 14.7%.  That is worse than a 9% effective tax rate, but still very low. See the video https://lnkd.in/gRNkbkFV. You will love it. #Investing #Capitalgainstax #Propertyinvestment #NegativeGearing #Finance

₹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.

Most people — including many CPAs and financial advisors — don’t fully understand how the long-term capital gains brackets actually work. Why? Because the calculations are complicated, and tax software does the math behind the scenes. 👉 Example: Married filing jointly, $70,000 ordinary income + $30,000 long-term capital gains • Your total taxable income is $100,000. • The 15% bracket is technically breached… • But here’s the surprise: most of your capital gains are still taxed at 0%. How it breaks down: • $24,050 of the gain at 0% • $5,950 of the gain at 15% ✅ Translation: Just because you cross into the 15% bracket doesn’t mean all of your capital gains jump to 15%. The IRS stacks your ordinary income first, and only the portion of gains above the threshold gets taxed higher. Tax planning often lives in these small nuances. Getting it right can save thousands.

At first glance, a 15% return from a real estate investment may appear equal to a 15% total return from stocks. But here’s what’s missing: When comparing investments, many focus on gross returns. But the real question should be: how much do I actually get to keep? Let’s say you invest $100K in a real estate deal and get a 6% annual distribution from the sponsor. That’s $6,000 a year in cash flow. Your K-1 may show a taxable loss—even though the property is generating positive cash flow—because of depreciation. Depreciation is a non-cash expense. This paper loss may offset taxable income depending on your passive income and tax status. Even though the property might be making money, the IRS lets you deduct a portion of the building’s value every year for “wear and tear.” That lowers your taxable income, many times to a negative number. So now you’re collecting this $6,000, and depending on your tax situation, you may not owe taxes on it immediately, especially if depreciation offsets the income and you qualify under passive activity rules. This often continues until there’s a capital event, such as a sale or refinance, which may result in a recapture tax and taxable gain. _____ Now compare that to stocks. You don’t have depreciation. If you receive dividends or you sell for a gain, you’re paying taxes. So even if a stock returns 10%, you might only record an 7%-8% return after taxes. And at the end of a real estate deal (let’s say after 5 years), you sell or refinance the property. After a capital event, now you’ve got a bigger chunk of money coming in, and more than likely, that’s going to be taxed. But the cool part is, you can potentially use a 1031 exchange. If you invest directly or the sponsor structures a 1031 exchange at the entity level, you can roll proceeds into a new deal and defer taxes - as long as you identify the next property within 45 days. This means you can keep growing your portfolio without reducing your investable capital. And that’s the key. These advantages compound. You’re not just saving money in year one, you’re reinvesting more capital, tax-deferred, again and again. And you’re earning cash flow that’s often shielded from taxes year after year. It’s a totally different equation. So while real estate might look like it has a 15% return in well-executed value-add deals, the reality may be much better when compared to stock returns, especially when you compare after-tax results. In the end, it isn’t about hitting the biggest number on paper. It’s about keeping more of the upside and letting it work for you over the long run. Have you already experienced the benefits of tax-efficient real estate investing?

Very few people understand why delaying realization of capital gains is important. Here’s a simple example. Suppose an investor has a $3M concentrated stock position that they are not comfortable holding. The cost basis is $1M. For simplicity, assume the investor’s long-term capital gains tax rate does not change over time and remains 36.1% (20% federal, 3.8% NIIT, 12.3% California state), whether the stock is sold today or 10 years from now. - Current Portfolio = $3M - Cost Basis = $1M - LTCG Tax Rate = 36.10% - Expected Rate of return = 10% - Years = 10 In the first scenario, the investor sells the concentrated position now, pays taxes, reinvests in a diversified fund, and exits the market after 10 years: - Tax Paid Today = $722K - Portfolio After Tax Today = $2.28M - Cost Basis Today = $2.28M - Portfolio Value Pre Tax 10 years later = $5.90M - Portfolio Value After Tax 10 years later = $4.5M In the second scenario, the investor uses tools that allow them to diversify while deferring capital gains taxes, then exits the market after 10 years: - Cost Basis Today = $1M - Portfolio Value Pre Tax 10 years later = $7.78M - Tax Paid in 10 years = $2.44M - Portfolio Value After Tax 10 years later = $5.33M By delaying taxes in a taxable account, the investor increases their expected after-tax portfolio value. In this example, over a 10-year period with a 10% annual return and a 36.1% LTCG tax rate, the investor generates an additional $735K in after-tax value, equivalent to increasing their post-tax growth rate by ~1.5% per year without taking on additional investment risk.

VP of Data Analytics $1 million+ offer for his company stock. His company was selling to private equity. So he had urgent questions: "What do I need to know about taxes?" This call reminded me why you can't wait until the last minute to plan. The best tax strategies take YEARS to set up. Here's what smart employees/founders plan for early: 𝟭) 𝗤𝗦𝗕𝗦 𝗧𝗮𝘅 𝗕𝗿𝗲𝗮𝗸 (𝗦𝗲𝗰𝘁𝗶𝗼𝗻 𝟭𝟮𝟬𝟮) → Must hold company stock for 5+ years → Up to $10 million gain can be tax-free when you sell → And this just increased with the new tax bill → Planning starts the day you get stock 𝟮) 𝟴𝟯(𝗯) 𝗘𝗹𝗲𝗰𝘁𝗶𝗼𝗻 → Must file within 30 days of receiving restricted stock → Elect to pay taxes now on the (hopefully) lower value → No tax upon shares vesting → Can lead to large savings if the share value increases 𝟯) 𝗘𝗮𝗿𝗹𝘆 𝗢𝗽𝘁𝗶𝗼𝗻 𝗘𝘅𝗲𝗿𝗰𝗶𝘀𝗲 → Exercise your stock options when company value is low → Start your 5-year QSBS clock early → Turn regular income into capital gains (lower tax rate) → Requires cash and careful planning 𝟰) 𝗦𝘁𝗿𝗼𝗻𝗴 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗕𝗮𝘀𝗲 → Emergency fund for surprise tax bills → Cash available to buy options early → Other investments besides company stock → Good cash flow for smart tax moves 𝗛𝗲𝗿𝗲'𝘀 𝘁𝗵𝗲 𝘁𝗵𝗶𝗻𝗴: You can't do these strategies at the last minute. They need years of planning and early choices. The people who make money from company stock: → Learn about their stock options from day one → Make smart choices within the deadlines → Save money to make strategic moves → Plan for a possible sale years ahead The best opportunities won't wait for you to get ready. If you have company stock or options, start planning now: → Learn about the QSBS tax break → Know your deadlines and choices → Build up cash for smart moves → Make a long-term plan Your next chance could change your life - but only if you plan years ahead.

With the S&P near 6,600 and other assets at all-time highs, my phone is ringing with sophisticated investors asking the same question: "How do we take profits without getting destroyed by taxes?" Since Congress just made the answer a permanent part of the tax code, it’s time to share the playbook: Opportunity Zones (OZs). The 3 Core Benefits of an OZ Investment An Opportunity Zone is a geographic area designated for economic growth. By investing your capital gains there, you get a powerful three-part tax advantage. 💰 1. Defer & Invest More Capital The old way: Sell $1M of stock, pay ~$240k in tax, and invest the remaining $760k. The OZ way: Reinvest the entire $1M gain. You start day one with over 30% more capital working for you, and the tax on that initial gain is deferred for years. ✨ 2. 100% Tax-Free Growth This is the magic. After holding an OZ investment for 10 years, all appreciation on that new investment is 100% tax-free. Your $1M grows to $4M? That $3M of new growth is yours, completely free from federal capital gains tax. Even better: no depreciation recapture. It's a true tax-free exit. 📉 3. Massive "Paper Loss" Depreciation Every new building you construct with OZ funds is eligible for 100% bonus depreciation. This generates massive paper losses that you can use immediately to offset other passive income, potentially driving your effective tax bill to zero for years. Advanced Strategy: The "OZ Flywheel" This is how the pros compound wealth. You can use tax-free refinancing proceeds to build project after project without contributing new capital. Here's a real-world example: Year 0️⃣ : Use a $5M capital gain to build a $10M apartment project. Year 3️⃣ : The property stabilizes. You execute a cash-out refinance and pull out $3M tax-free. Year 4️⃣ : You use that $3M to start your next OZ apartment project. You can repeat this cycle across a portfolio, using the same initial gain to fuel growth again and again. Your Due Diligence Checklist This is a complex strategy, and not all OZ funds are created equal. Before investing, ask any fund manager these three questions: --What is your real estate development track record? (An OZ is a tax law wrapped around a real estate deal. The real estate must be solid.) --How are you managing the future deferred tax liability? (Smart operators set aside capital from cash flow or a refinance so there are no surprises.) --Can you show me a sample K-1 for both the fund (QOF) and the property (QOZB)? If they stumble on these, walk away. Ultimately, there are two ways to permanently eliminate federal capital gains tax on appreciation: Die (your heirs get a stepped-up basis). 1. Hold an OZ investment for 10+ years. 2. I know which option my partners and I prefer. For the investors and CPAs here: What's the biggest misconception you still hear about Opportunity Zones?

In nearly every conversation we have had with family-office capital this spring, the same question keeps surfacing: how does the after-tax math actually work? Headline IRR is only part of the story.   For many investors, the gap between a multifamily investment's pre-tax return and its after-tax outcome can be meaningful. Depreciation, cost segregation, and tax deferral strategies can materially affect the result that ultimately lands on an investor's balance sheet.   Recent changes under the One Big Beautiful Bill have made that conversation even more relevant. For many high-bracket investors, the difference between a deal's headline return and its after-tax return may be more significant than it was just a few years ago. This is not a tax-shelter story. The real estate still has to perform. But ignoring the after-tax architecture of an investment can lead investors to compare opportunities on an incomplete basis.   A few observations:   First, depreciation can shelter a meaningful portion of current income from taxation.   Second, cost segregation can accelerate those benefits into the earlier years of ownership, when they are often most valuable.   Third, structure matters. Direct ownership, fund structures, and 1031 exchange vehicles can produce very different after-tax outcomes even when the underlying real estate is similar.   One mistake we see frequently is comparing a multifamily investment's pre-tax IRR to a public REIT dividend yield or corporate bond yield without considering the after-tax differences.   For long-duration investors, the asset, the financing, and the tax structure all matter. Looking at only one of the three can produce an incomplete picture.  After-tax returns are ultimately the returns investors keep. 29th Street Capital 29th Street Living