Want to keep more of what you earn and grow your portfolio faster? In this final episode of my Leverage Series, I dive into four powerful tax strategies that can help you build wealth like the pros—1031 exchanges, cost segregation, passive losses, and opportunity zones. These tools are how experienced investors scale smarter, preserve capital, and reduce tax burdens legally and effectively. If you’re serious about real estate investing, this is the episode (and post) you don’t want to miss.
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Do you want to maximize your wealth by keeping more of your hard-earned money? Implementing the right tax strategies with your real estate investing can save you thousands and eventually millions over time. Welcome to the final episode of my six-part leverage series where I have been exploring various strategies to 10x your growth using leverage.
If you’ve missed any episodes, be sure to go back wherever you’re listening and check them out and be sure to subscribe for more insights going forward. Now, why does leverage matter? Why have I spent six different episodes talking about it? Because it’s going to allow you to 10x—because you do a little bit and with leverage a lot gets done. And let’s talk about specifically leveraging some tax strategies because the affluent, the super rich, they’re not just earning money. They’re preserving it. Utilizing tax strategies effectively is going to allow you to do the same—to reinvest more and have faster growth. It allows you to 10x.
And so in this final episode of the Leverage Series, I’m going to provide an overview of four powerful tax strategies: 1031 exchanges, cost segregation, passive losses, and opportunity zones. If you’d like a deeper dive into any of these topics, let me know in the comments and I can create another podcast episode addressing your specific questions and challenges.
Let’s dive right into the first strategy: 1031 exchanges and how they can help you reinvest tax-free. I know when I first got started, before I’d ever done a 1031 exchange, it was a little scary. Like, okay, there’s all these benefits, but how exactly does it work? And then once you’ve done them, the great news is it’s actually pretty simple in reality.
So let’s talk about the why and then the how. A 1031 exchange allows you to defer the capital gains taxes when you sell an investment property so that as long as you reinvest all the proceeds into another like-kind property, you don’t have to pay taxes at the time of sale. Let’s walk through this. You sell a property and the money goes straight from the title company to a qualified intermediary. They hold the funds while you look for and find a new investment property. There are some timelines in place for how quickly you do this. Once you find that new investment property, you go under contract, get to the closing table, and the qualified intermediary wires the funds to that title company so you can use those funds to buy the new property.
Rather than taking the funds from that first property sale and paying taxes on any income you made from it, you’re deferring those taxes. That gives you more to roll into that next property. Now, you might be thinking, “I’m going to hold every property I have until I pass away and my kids get a step-up in basis.” Nine out of ten new investors think this, and I get it. But as you grow as an investor, your strategies, desired asset types, and goals may change. A 1031 allows you to evolve—moving into new properties and strategies without a big tax hit. You can pivot and change without a huge tax bill.
Another key benefit of a 1031 exchange is that it lets you use financial leverage to a greater extent. If your equity in a property has increased over time through mortgage pay down and appreciation, a 1031 exchange enables you to reinvest that equity into a larger property with proportionally higher returns.
Suppose you have $250,000 in equity in a $500,000 property. You now have 50% equity. By using a 1031 exchange, you could roll that $250,000 into a $1 million property with 25% down. If both properties were appreciating at 7% per year, the first gives you $35,000 in appreciation, while the second gives you $70,000. That’s 2x the net worth growth just from appreciation alone. Your $250,000 in equity now earns $70,000 annually in appreciation—a 28% return on investment. That’s one reason I like doing 1031 exchanges when you’ve had a property for a few years. Your options are either do a cash-out refi, a HELOC, or use a 1031 exchange to be more leveraged and get more return on your capital.
On to strategy number two: cost segregation and bonus depreciation. Cost segregation is a tax strategy that accelerates depreciation on specific parts of your property so you can reduce taxable income in the early years of ownership. You’re likely not going to hold the property for 30 years anyway, so this helps you access depreciation sooner.
To use cost segregation, you do a cost segregation analysis or study, which identifies items—like fences, flooring, appliances—that can be depreciated over five, seven, or 15 years instead of 27.5 or 39. That $10,000 fence? Instead of depreciating it at a couple hundred bucks a year, you can take $2,000 a year over five years. It adds up.
Cost segregation pairs with bonus depreciation, which allows you to take an immediate deduction on a percentage of the cost of eligible assets. Talk to your bookkeeper or accountant for the specifics. People are discussing that 100% bonus depreciation may return in 2025, so keep an eye out.
The pro of this strategy? You get big tax savings upfront and more cash flow to reinvest. If it saves you $10,000 on taxes this year, that’s $10,000 more you can deploy for growth. The con? You’ll need a professional cost segregation study, which could cost a few thousand. This is great for high-income investors, especially if you own multifamily, commercial, or short-term rentals.
Our third strategy is passive losses. Real estate investments can generate paper losses through depreciation. So even if your property has positive cash flow, your taxes can show a loss.
Let’s say your rental net income is $10,000, and your depreciation is $12,000. On your taxes, that’s a $2,000 loss—even though you made money. That’s passive loss. The benefit is you don’t pay taxes on that $10,000 in income. And you might even apply that $2,000 in losses to other income—like your job—if you qualify as a real estate professional or through the short-term rental loophole.
This is where it gets powerful. You made money, but the IRS says you didn’t. The downside is qualifying to use passive losses outside of real estate income requires real estate professional status or meeting specific criteria like hours spent managing your properties.
Finally, let’s talk about opportunity zones. These are tax incentives for investing in government-designated, historically distressed areas. And some of these areas are now up-and-coming hot spots. If you sell a property with capital gains and reinvest that gain into an opportunity zone, you can defer or even reduce your capital gains taxes.
If you hold the new investment for 10 years, the appreciation becomes tax-free. You might also reduce the tax burden on your original capital gains. This strategy rewards long-term investment, offers big tax advantages, and supports community revitalization. Just remember: it’s a long-term commitment and you need to follow the right timelines between sales and reinvestments. Opportunity zones were originally set to expire in 2026, though that could change.
Let’s finish with what not to do when leveraging tax strategies. First, don’t skip working with a CPA or tax strategist. These strategies can get complex. I know some fabulous real estate-focused pros—reach out if you want a connection. Second, don’t wait until tax season to plan. The best savings come from pre-planning. Third, avoid the one-size-fits-all trap. What works for your friend might not work for you.
Lastly, document everything—depreciation, 1031s, cost segs—store it in the cloud. I use Google Drive. It’s searchable, easy to access, and helps you stay organized.
I hope this final episode on leveraging tax strategies gives you insight and action steps to grow your real estate wealth. If it added value, like and subscribe, and share with another investor who could benefit. Let me know in the comments what you’d like to hear more about. I look forward to continuing the journey with you.