• Ian Ippolito

How to Invest in Real Estate Without Paying a Penny of Tax (Legally): Part 2: "Defer, Defer and Die"

Updated: Jan 18

You can pay $0 in tax by pairing depreciation with a technique humorously called "defer, defer and die". Also, the new tax law opens up additional options...

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No one wants to pay more tax than they have to. So many investors spend a lot of time thinking about how to reduce the tax burden.

Part 1 of this article looked at traditional retirement-vehicle tax-sheltering methods and why they don't stack up. Here in Part 2, we'll look at how experienced investors like John Frederick use non-retirement money to pay zero taxes while still maintaining maximum financial flexibility. And then we'll look at the best ways to implement this without breaking the bank. Then in part 3, we'll see how "passive-pairing" can drastically reduce or eliminate your investment taxes. And then in Part 4, we'll look at how to implement that.

Taxed Both Ways

To recap from part one: when you invest in real estate, you're potentially taxed in two ways. First, the profit from renting it (net operating income) is taxed as ordinary income. This profit is taxed at the same marginal rate as if you had made more money with your employer (which for most accredited investors is between 22 - 37%).

Second, you also hope that the property is worth more when you sell it. If so, then the profit from that is taxed as capital gains (which for most accredited investors is relatively lower and ranges from 15 - 20%).