Learn how to use a stepped-up basis to avoid a $177,500 tax bill on inherited real estate. See exactly how holding property works.
This breakdown covers a specific real estate tax strategy designed for investors looking to protect their assets. I explain how one client successfully avoided paying massive capital gains tax and depreciation recapture fees by choosing to hold a fourplex rather than selling it during their lifetime.
By passing the property to an heir upon death, the asset received a stepped-up basis. This resets the cost basis of the property to its current market value, effectively wiping out the tax liability that would have been triggered by a sale. This is a critical concept for anyone involved in estate planning or long-term property holding.
In this episode of The Tax Strategy Playbook, I walk through the 5 best assets you can leave your heirs and the 5 worst estate planning traps real estate investors fall into — traps that can cost families six figures in avoidable taxes and legal fees.
You'll learn:
✅ How step-up in basis can erase capital gains and depreciation recapture at death
✅ Why holding property in an LLC + revocable living trust keeps your estate out of probate
✅ How cost segregation studies compound across generations
✅ How real estate depreciation can fund tax-free Roth IRA conversions for your heirs
✅ Why an ILIT (irrevocable life insurance trust) solves the liquidity problem real estate creates
✅ The 5 worst mistakes: undivided ownership interests, unplanned depreciation recapture, un-documented short-term rental businesses, oversized traditional IRAs, and property left entirely in your personal name
✅ How the 2025 One Big Beautiful Bill Act (OBBBA) changed bonus depreciation and the federal estate tax exemption for 2026
Real-world case study included: how the "Wilsons" — a couple with a $4.4M real estate portfolio — could lose $350K–$500K in unplanned taxes and fees, or preserve it with proper structure.
If you're a real estate investor with rental or commercial property and you've never had a real conversation about how your portfolio and your estate plan fit together, this episode gives you the questions to ask and the gaps to close.
CHAPTERS:
00:00 The $177,500 Tax Bill
01:39 Introduction
02:54 Why 2026 Matters
04:11 Best Asset #1 - Appreciated Real Estate Held Until Death
05:56 Best Asset #2 - Property Insidee an LLC and Living Trust
09:15 Best Asset #3 - Cost Segregated Property Held Until Death
10:10 Best Asset #4 - Roth IRA
11:34 Best Asset #5 - Life Insurance Inside an ILIT
12:34 Worst Position #1 - Traditional IRA with No Roth Plan
13:40 Worst Position #2 - Undivided Interests with No LLC
16:33 Worst Position #3 - Big Recapture
17:30 Worst Position #4 - STR with No Operating Succession
18:28 Worst Position #5 - Properties in Personal Name
19:15 FAQ
21:32 Playbook - 5 Action Steps
23:19 Recap and Closing
⏱️ Want cost segregation, a 179D lookback study, or an R&D credit study for your own portfolio? Schedule.a call at https://calendly.com/david-wiener/cs
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📌 Topics covered: step-up in basis, cost segregation, LLCs and revocable living trusts, depreciation recapture, Roth IRA conversions, ILITs, bonus depreciation under OBBBA, 1031 exchanges, short-term rental succession planning, and probate avoidance for real estate investors.
Disclaimer: This content is for general educational purposes and is not personalized tax, legal, or financial advice. Consult a qualified tax strategist and estate attorney about your specific situation.
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