Client Background
Through our network of real estate professionals, we work closely with brokers across the country. One such client was a top-producing commercial real estate broker in the Orange County market. Following an exceptionally strong year in 2021, he faced a six-figure tax liability driven by substantial active income.
The Challenge
Rather than paying a significant portion of his earnings to taxes, the client wanted to explore strategies that could reduce his current-year tax burden while still allowing him to deploy capital into long-term investments. Given the nature of his income, traditional passive real estate strategies alone would not have been sufficient.
The Strategy
Because the client qualified as a Real Estate Professional, he was able to apply depreciation losses against his active income. We allocated an amount roughly equivalent to his expected tax liability into several bonus depreciation funds, allowing him to leverage accelerated depreciation while maintaining diversified real estate exposure.
The Outcome
The depreciation generated by the investments substantially reduced the client’s tax bill—bringing his total liability to below $100,000. Rather than treating taxes as a sunk cost, the capital was redirected into income-producing real estate assets with the potential for ongoing cash flow and long-term appreciation.
Furthermore, she gained exposure to more real estate which was something her portfolio was lacking entirely with the exception of her primary residence.
The Result
The client significantly lowered his current-year tax burden while converting a potential tax payment into an investment portfolio aligned with his long-term financial goals.
Furthermore, she gained exposure to more real estate which was something her portfolio was lacking entirely with the exception of her primary residence.
Key Takeaway
For qualified real estate professionals, bonus depreciation strategies can be an effective way to offset active income while building long-term, income-producing investments.