In this episode, Anderson attorneys Amanda Wynalda, Esq., and Eliot Thomas, Esq., tackle a wide range of listener questions on tax strategy for real estate investors, business owners, and stock market traders. They dig into whether Section 187 depreciation on heavy equipment can offset capital gains from a property sale, and why material participation is critical for bonus depreciation to work. They clarify that real estate professional status is an individual designation — not an entity filing status — and explain how it can convert passive rental losses into active deductions.
Amanda and Eliot also address how stock market gains can be offset through actively managed farms and rentals, the benefits of a C-Corp property manager in Washington state despite the Business & Occupation tax, and why you cannot deduct life insurance policy loan interest under Section 264. They cover the tax impact of converting a rental property to a primary residence, how the Section 121 exclusion applies proportionally to a mixed-use apartment building, the mechanics and timing rules of a 1031 exchange, and why transferring a fully depreciated property into a land trust generally has no income tax impact. Tune in for expert advice on these and more!
Submit your tax question to taxtuesday@andersonadvisors.com
Highlights/Topics:
- 00:00 — Intro and questions
- 09:50 — “I’m starting a Heavy Equipment Rental Business, which will be active income. Can I use the Section 187 Depreciation expense on Heavy Equipment to offset the Capital Gains tax that I will incur on an investment property that I am selling in 2026?” Section 187 is obsolete (was for mining safety); bonus depreciation requires active material participation.
- 18:50 — “I am a homebuilder with an LLC structured as a C-Corp. I self-manage/own a new 36-unit rental property in a passthrough LLC. I have my real estate license (inactive). Should I change my filing status to real estate professional from a C-corp?” Real estate professional is an individual status, not an entity’s filing designation.
- 25:02 — “I am consistently making profits in the stock market. I have a farm and some rental properties owned as pass through LLC’s. Can I invest in my business and the rentals to reduce tax consequences from stock market gains?” Active material participation in farm and rentals can offset stock gains.
- 33:44 — “We set up a C-corp property manager to manage a rental portfolio via rental LLCs. Unfortunately, in WA state prop. mgrs. are required to pay a 1.5% Business & Occupation tax, while rental owner LLCs are not. High-level question: is it still worth using a C-corp property manager?” Yes — the management fee income stays below the $100K B&O exemption threshold.
- 38:45 — “How can I borrow money from a life insurance policy, use it to invest in lending like private lending or a mortgage note, and be able to write off the policy loan interest as expenses to lower overall tax liabilities from interest earned from lending activities?” Tax code Section 264 prohibits deducting life insurance policy loan interest.
- 41:42 — “What are the tax implications if I purchase a property in an LLC for rental purposes, renovate it, and take all applicable write-offs, but then change my mind and decide to live in it and transfer it into a living trust?” Depreciation deductions lower your basis, reducing your Section 121 exclusion later.
- 46:04 — “I live in Arizona and owner-occupy (live-in) in 6% (1 unit) of a 17-unit apartment building square footage (9,645ft²). Would the $250,000 capital gains tax exclusion rule apply to the sale of the building?” Only the 6% owner-occupied portion qualifies for the capital gains exclusion.
- 49:49 — “Please review the benefits of 1031 exchanges.” A 1031 exchange defers all capital gains tax by rolling into replacement property.
- 55:10 — “What is the tax impact of placing my fully depreciated property in a land trust?” Transferring to a land trust typically creates no income tax event whatsoever.
Resources:
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