Do not ever ever ever make real estate investments and perform cost segs without a plan for what you are going to do 5-10 years down the line

Ideally, if you own high quality assets, you can continue to own and operate them for steady cash flow and appreciation, but sometimes things happen (like cap rates compressing to absurd levels in ‘21) that may make selling/exchanging to something else a wise decision

First, a quick review:

• Capital gains are imposed on any appreciation (0%, 15%, 20%)
• Depreciation recapture is broken into 2 types/rates under section 1250
  • Straight-line recapture is treated as capital gains with its own 25% rate
  • Accelerated depreciation is recaptured at ordinary rates

So, capital losses from tax-loss harvesting your equity portfolio can be used to offset both capital gains and straight line recapture. If you aren’t harvesting losses systematically within your stock portfolio you are missing out.

Tax-aware hedge funds can realize deductions that may help with the recapture of accelerated depreciation.

You can always look at doing the DST to UPREIT structure to stay invested in real estate and transition to a passive allocation with a blue-chip real estate manager.

Lastly, you can always manager your own 1031 process or initiate new real estate investments that can realize large amounts of depreciation that can be used to shield the sale of old real estate properties.

There are a lot of options with different pros/cons so if you are in this situation, I’d encourage you to work with someone that can help find the best path (or paths) for you.