There are many types of real estate investments that have tax advantages. Real estate agents who stay up-to-date on changes in the tax laws are more valuable to real estate investors. For example, it is useful to many clients if a real estate agent understands the basics of how to manage a tax-exchange sale (1031 exchange). This type of exchange sale includes purchasing a similar asset to postpone the payment of capital gains tax on the property that sells.

In addition to popular 1031 exchange transactions, there are lesser known strategies that are beneficial for investors with specific circumstances These include exchanges based on IRS section 1033 and 721 as well as the exclusion limit now in place for personal residences under section 121.

1033 Exchanges

This provision allows an investor to make an exchange if a property the government takes property under an eminent domain action or if a natural disaster destroys a property. Property taken by an eminent domain process is replaceable by a similar asset for up to three years after it. For a natural disaster exchange, the investor has two years.

721 Exchanges

This IRS rule allows an investor to exchange an investment property (not a residence) for ownership interests in a Real Estate Investment Trust (REIT). This technique is called an “upREIT” transaction. Not only are capital gains tax deferred, but a REIT can also be sold in smaller pieces allowing liquidation over time with potentially tax beneficial consequences. This only works one direction to invest in a REIT. REIT ownership interests cannot be invested in real estate property using a 721 exchange.

121 Exchanges

For personal residences, the new 121 exclusion places a limit for the amount of capital gains exclusion of $500,000 for married persons and $250,000 for individuals.

Real Estate Investment in Opportunity Zones

New Opportunity Zones come from the JOBS Act and the recent changes in the tax code. The creation of these zones is a development stimulus for poorer areas. There are many of them all across the USA. The tax benefits on a federal level include either deferral of capital gains or permanent exclusion of capital gains tax for investments held over 10 years (or exchanged with like properties during the 10 years). There may also be state and local tax incentives for specific Opportunity Zones.

Add Another Feather To Your Cap

Real estate agents and brokers can expand their offerings of professional services by making the effort to become a certified financial planner (CFP). As a CFP, in addition to earning commissions from real estate transactions, an agent may also legally earn money by giving financial advice.

The requirements for a CFP are having a bachelor’s degree, completing an authorized course, accumulating three years of experience working as a financial advisor, and pass the CFP exam.

At first, this may seem to be a lot of work; however, those who go to the trouble to be able to add CFP after their name may discover many opportunities. Possibilities for making money may open up that make expanding an advisory practice easier. For example, a real estate agent may discuss the tax benefits of a real estate purchase with a client. However, giving financial and tax advice to help a client manage an investment portfolio requires being a CFP.

The Financial Advisory Team Approach

As an alternative to getting certified as a financial planner, real estate professionals can team up with other professionals who have the proper certifications. A very powerful combination of a financial advisory team is a group that has an attorney, a CPA, a CFP, a stockbroker, an investment banker, and a real estate broker.

Groups of professionals like this are assembled to manage the investment portfolios of the super wealthy. These structures are called a Family Office. These same types of advisory groups may also work for those with a smaller net worth who affiliate with each other and like to have a “one-stop” solution for financial advice. Examples of these structures are those that help professional athletes and other affinity groups.


Understanding tax-deferred investments are an important part of the real estate sector. Professional development that includes expanding certifications may allow basic real estate agents to become more valuable to potential clients. This may enhance their success and improve the agent’s client base. Knowing the tax code and becoming a CFP is a way for real estate agents to differentiate themselves and stand out as industry leaders.


Income Tax Deferral Strategies for Real Estate Investors

How to Become a Financial Advisor

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