Welcome back, savvy investors! If you've been following our Golden Keys of Real Estate series, you're already ahead of the game. You've just learned about the power of 1031 exchanges and how they can defer your taxes. But that's just the tip of the iceberg.

The next five strategies aren't obscure loopholes or risky schemes. These are fundamental strategies baked into the tax code, designed to reward smart investors like you. These core strategies are the difference between playing chopsticks and a Mozart concerto with your investments.

Let’s dive in.

Disclaimer: This article is for educational purposes only. Consult qualified tax and legal professionals before implementing any strategy.

Strategy 1. Capital Gains - The Long-Term Advantage.

You can turn 2 days into 20% gains.

Specifically, the difference between selling a property after 364 days vs. 366 days.  Why?  Because you qualify for a lower “long term capital gain” tax rate instead of ordinary income.

To use this strategy, be creative with your timing.  As a simple example, if you get an offer to close a property on day 277, rent it back to the buyer for 90 days prior to close to push the holding period over a year.  Pro Tip: “long term” holdings also quality for other special tax benefits, especially related to property donations and real estate professionals.

Strategy 2. Property Donation - The Triple Win Strategy.

Donating property isn’t just philanthropic, it’s tax efficient.

In 2022, I donated an unused building on one of my properties to the county.  They demolished it and turned into a park where kids now gleefully play on a new baseball field.

I got a significant deduction, avoided demolition costs, and improved the value of the remaining property - all in a single move. Donating works especially well for illiquid markets, quirky assets, and remote areas.  I like this tax strategy since it helps me accomplish philanthropic goals and improve neighborhoods I care about.

Strategy 3. Primary Residence Exemption - Your Tax-Free Nest Egg. 

Live in it, fix it, sell it tax free.  The government has a gift for you if you make a profit on your primary residence: you can deduct the first $250,000 of gain (or $500,000 if you are married) without paying any capital gains tax. It's like looking for coins in your couch and finding stacks of $100 bills.

A couple I know in Oregon has flipped their way to great wealth, using the primary home exemption an astounding 14 times in the last 40 years.  In the process, they’ve worked up from a $40,000 fixer to mansions, while simultaneously earning wages from other investors for their design and construction expertise.

Strategy 4. Step-up in Basis at Death - The Inheritance Tax Erase.

Imagine the taxman as a persistent debt collector, always knocking on your door for a piece of your property's appreciated value. But death acts like a cosmic 'reset' button on your property's value. When you pass, it's as if that pesky tax collector's ledger gets wiped clean, and your heirs inherit a fresh start, free from the burden of your property's past appreciation.

To maximize this benefit, many families strategically hold onto appreciated property until the elderly owners pass.  This is also a great strategy when combined with the 1031 exchange, which on its own can result in a very low tax basis in investments.

Strategy 5. Passive Activity Losses and Activation - The Paper Loss, Real Gain Paradox. 

Depreciation is an important concept in real estate investing. It can result in a property showing a paper loss for tax purposes, even when it's generating positive cash flow. These losses may be used to offset passive income from other investments, potentially reducing your overall tax liability.  When you can become a real estate professional, you can use these paper losses to offset the wage income you might earn in a day job. I've saved six figures with this strategy alone.