No Depreciation, No Problem

Has your depreciation run out? Now is the time to consider trading up by using a 1031 tax-deferred exchange.

The depreciation tax deduction is one of the biggest perks of owning investment real estate, however, this perk is limited by a specific length of time. The only way to recapture this perk is to flip your property into another investment using a 1031 tax-deferred exchange. This will allow you to lock in decades worth of tax shelters while securing a larger asset which will give you greater exponential equity growth. See the example below for how this can affect you.


  1. Current Investment: 10 Unit apartment building owned free and clear

    • $3,500,000 value

    • $157,500 Annual Net Operating Income (4% Cap Rate)

    • $51,975 Taxes Payable (33% tax bracket assumed)

    • $105,525 After Tax Annual Cash Flow (3% Rate of Return)

    • $6,339,000 Estimated value in 30yrs (2% yearly appreciation assumed)

    • $2,839,000 Appreciation equity earned

  2. Proposed Investment: 20 Unit Apartment building (example is a real property currently listed)

    • $6,650,000

    • $269,325 Annual Net Operating Income (4.05% Cap Rate)

    • $181,363 Annual Depreciation Deduction (Price X 75%/27.5)

    • $148,200 Estimated Interest Expense Deduction (30yr amortization at 4.75% assumed)

    • $0 Taxes payable (Loss of $60,238 reported on taxes)

    • $121,125 Annual Cash Flow + Equity Payback (3.46% rate of return)

    • $12,045,000 Estimated value in 30yrs (2% yearly appreciation assumed)

    • $8,545,000 Appreciation + Principal payback equity earned

 

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