Podcast Summary: Tax Smart Real Estate Investors Podcast

Episode 355: “Tax Strategies No One’s Talking About (That Save Real Estate Investors a Fortune)”
Host: Hall CPA team (Tom, Nathan “Nate”, et al.)
Date: November 26, 2025
Length: ~60 minutes

Episode Overview

In this highly informative year-end episode, the Hall CPA team dives deep into off-the-beaten path tax strategies specifically geared for real estate investors—including advanced land banking structures, overlooked 1031 exchange variations, disaster-related casualty loss deductions, and common but costly tax return mistakes. The panel not only explains the technical differences in these strategies, but also shares real-world examples and offers caution around practical pitfalls. The tone is both authoritative and generously explanatory—with plenty of actionable nuggets and real-life “don’t-do-this” moments.

Key Topics & Insights

1. Land Banking: Structure, Taxation, and Strategy

[02:00 – 09:20]

• What is Land Banking?
  • Buying land in expected growth areas, holding for long-term appreciation, and selling at a gain later.
  • Particularly attractive to developers and investors seeking diversification from stocks, bonds, and traditional real estate.
• Tax Treatment:
  • Long-term capital gains rates apply when land is held and sold before development (max 23.8%), versus ordinary income rates on other investments (like 401k withdrawals).
  • Quote: “Land banking is taxed at capital gains rates. So that’s max 23% versus ordinary rates...” – Nate [03:06]
• Developer Strategy:
  • If developing the land, initial improvements can lead to the land becoming “inventory” and taxed at the much higher ordinary income rate (~37% + self-employment tax).
  • Advanced Approach: Sell the raw land to an S corporation before development—realizes current appreciation at the capital gains rate, and the S corp then develops and sells the enhanced parcels as inventory (but the stepped-up basis reduces future taxes).
  • Quote: “You’re basically paying a capital gains rate to get a basis step up—to save yourself at ordinary tax rates... you’re going to save basically at least 17%, if not more.” – Nate [07:09]
  • Warning: The IRS heavily scrutinizes these transactions (see the “Winthrop factors”), so only attempt with experienced professionals.

2. 1031 Exchange Variations: Reverse & Improvement (“Build-to-Suit”) Exchanges

[09:20 – 17:44]

a. Reverse 1031 Exchange

[09:20 – 12:43]

• Buy your replacement property before you sell your relinquished property.
• The new property is held by a Qualified Exchange Accommodation Arrangement (QEAA) until your old property sells within 180 days.
• Legal costs are higher; your capital may be tied up if you can’t sell the old property fast enough.
• Quote: “So, you purchase the new one, park it in what’s called a qualified exchange accommodation arrangement...and within 180 days, you then sell your property.” – Nate [10:06]

b. Improvement (“Build-to-Suit”) 1031 Exchange

[13:58 – 17:44]

• Sell current property, then use 1031 proceeds to buy land and begin construction or improvements—must be completed (or funds committed) within 180 days.
• Can’t use land you already own.
• Huge construction timeline risk: large projects may not finish in time to qualify.
• Quote: “180 days is a super fast time frame...So, if you already own the land, you can’t transfer it into the EAT. That blows it up.” – Nate [13:58]
• Having an experienced team (developer, contractor, CPA, intermediary) is absolutely crucial.

3. Casualty Losses—Hidden Deduction for Disaster Victims

[18:11 – 22:29]

• Definition: If your investment property or personal residence is damaged/destroyed in a declared natural disaster (state or FEMA), some uninsured losses are deductible.
• Business Losses: Deduct the difference between your cost basis and insurance payout if you walk away from the property.
• Personal Losses: Also deductible (as a miscellaneous itemized deduction) if supported by documentation and if the loss occurs in a disaster area.
• Examples & Cautions: From Oklahoma ice storms uprooting trees, to hurricanes damaging property in Florida.
• Quote: “If that happens, great, you get to take advantage of that and you can start taking them...if you can prove it’s a disaster casualty loss.” – Nate [19:13]
• Ordinary Deduction: Can offset even W-2 income.
• If you rebuild, this deduction generally doesn’t apply; only partial asset disposition may be possible.

4. Solar Panel Deductions and Credits

[22:57 – 24:10]

• Dual Benefit: Immediate depreciation (via bonus or Section 179) and a federal tax credit (currently 30% of installation, but the credit phase-out is pending).
• Must reduce basis by the amount of the credit.
• Only a limited window remains before the credit sunsets.
• Quote: “So now you put solar panels on your roof—that is a tax deduction and a tax credit... a $30,000 tax credit on $100k in panels.” – Nate [23:08]
• Spur for investors in sunbelt rental markets, short-term rentals, Airbnbs, etc.

5. Major Tax Return Mistakes & How to Avoid Them

[24:40 – 31:50]

a. Net Investment Income Tax (NIIT) Error

[24:40 – 27:45]

• What is NIIT? 3.8% Medicare surtax on passive income—most rental income unless you qualify as a real estate professional (REP).
• Common Mistake: The “REP” box isn’t checked in tax software, subjecting investors to unnecessary NIIT (potentially six-figure overpayments!).
• Case study: “They have paid almost a million dollars in net investment income tax...” [25:41]
• Action: Review your past returns, always check “REP” status, and question the NIIT form with your preparer.

b. The Dash-9 (“Groupings”) Election

[28:01 – 31:21]

• What is it? IRC 1.469-9(g) allows grouping of rental activities so all hours across properties count toward meeting REP/material participation.
• Why file it? Without it, hours are counted per property—almost impossible with many units; also essential for investors with syndications.
• Mistake: A lost or unfiled election means you might not qualify for material participation status, triggering passive loss issues.
• Tip: Though you only “need” to file once, the safest approach is to file every year.
• Nuance: In rare cases, it may be advantageous NOT to group; careful planning required.

Notable Quotes & Timestamps

• Land Banking Step-up:
  “You’re basically paying a capital gains rate to get a basis step up—to save yourself at ordinary tax rates... you’re going to save basically at least 17%, if not more on that exchange.” (Nate) [07:09]
• 1031 Build-to-Suit Risk:
  “180 days is a super fast time frame for construction...not a strategy for the faint-hearted here.” (Tom) [17:16]
• Casualty Loss as Ordinary Deduction:
  “Yes, these are ordinary deductions. Both the business and the personal are ordinary deductions here.” (Nate) [21:45]
• Net Investment Income Tax Oops:
  “Over the past three years... they have paid almost a million dollars in net investment income tax.” (Nate) [25:41]
• Dash-9 Failures:
  “I just ask: if you claim REPS and you want to claim a Dash 9 election, make sure every single tax year it is filed...” (Nate) [29:35]

Actionable Takeaways

• Strategic Land Banking: If you’re a developer/investor, consider entity structuring to minimize high ordinary income tax rates on development profits—but ALWAYS involve a CPA well-versed in these audits.
• 1031 Talent Stack: Add reverse and improvement exchanges to your toolkit—but only attempt with an experienced legal, tax, and brokerage team, and a clear exit strategy.
• Disaster Planning: After extreme weather, scrutinize your insurance settlements—casualty loss deductions could save you thousands instantly.
• Solar Value-Add: Don’t overlook solar as a tax strategy if you own property in sun-rich areas; credit phase-outs approach.
• Avoid Return Mistakes: Annually review your REP status and check all grouping/dash-9 elections. Even seasoned CPAs miss these!
• Collaboration is Key: Always review returns with your preparer, especially for complex real estate portfolios or active investor status.

Final Thoughts

The hosts emphasize collaboration between investors and their tax professionals, continual review of tax returns, and proactive planning—especially as the year closes. As one host summarized:

“Having those conversations is always beneficial for everyone... Tax return prep and advisey are a partnership.” (Nate) [31:50]

Important Timestamps

• [02:00] – Land Banking Strategy Breakdown
• [09:20] – Reverse 1031 Exchange Explained
• [13:58] – Improvement/Build-to-Suit 1031 Exchange
• [18:11] – Disaster-Related Casualty Losses
• [22:57] – Solar Deductions for Real Estate
• [24:40] – Net Investment Income Tax Mistakes
• [28:01] – The Dash-9 Grouping Election

For more resources, downloads, and specialized advice, visit:
The Real Estate CPA Podcast

Note: This summary intentionally omits promotional content, ads, and general disclaimers, focusing solely on actionable educational material.