Other Wealth Building Tax Strategies

Section 1033: Condemnation and Involuntary Conversions

Originally placed in the Tax Code in 1921, Internal Revenue Code Section 1033 governs the tax consequences when a property is compulsorily or involuntarily converted in whole or in part into cash or other property.1 This
is commonly referred to as an involuntary conversion since the loss of property is beyond the control of the taxpayer. There is no requirement under Section 1033 that a third party accommodator—as a qualified intermediary in an IRC §1031 tax-deferred exchange—be employed to hold the conversion proceeds.

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Cost Segregation Overview

Cost segregation is a highly beneficial and widely accepted tax planning strategy utilized by commercial real estate owners and tenants to accelerate depreciation deductions, defer tax, and improve cash flow.

A cost segregation study (CSS) allows taxpayers to accelerate substantial depreciation deductions by identifying costs that can be allocated to shorter recovery periods; primarily 5, 7, and/or 15-year as opposed to 27.5 (residential rental) or 39-year (commercial).

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Section 121: Primary Residence Exclusion

Homeowners who have resided in their residence for at least two of the last five years may be eligible for the Principal Residence Exclusion allowed under section 121 of the Internal Revenue Code. Single taxpayers are entitled to a $250,000 exclusion and married taxpayers filing jointly are entitled to a $500,000 exclusion. An exclusion allows you to have a gain on the sale of your primary residence up to the maximum limit without having to pay capital gain taxes. Any gain over and above these exclusion limits is taxable. 

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