David Lawver Explores Tax Efficiency for Real Estate Investors: Strategies to Legally Reduce Liabilities

Real estate remains one of the most powerful wealth-building vehicles, not just for its potential for appreciation and income, but for the vast array of tax advantages it offers. For savvy investors, understanding and utilizing these benefits can make a massive difference in net returns. While the basic goal of investing is to earn more than you spend, minimizing your tax liabilities through legal strategies is essential to maximizing those gains.

David Lawver will explore the key strategies real estate investors use to reduce their tax liabilities—without crossing legal boundaries. David Lawver, founder of Turnkey Ventures, will focus on three of the most impactful tools: depreciation, 1031 exchanges, and opportunity zones. Together, these can offer a sophisticated blueprint for tax efficiency, helping investors retain more capital for reinvestment and long-term wealth building.

The Power of Depreciation

One of the most well-known (and misunderstood) tax strategies for real estate investors is depreciation. Depreciation is a non-cash deduction that allows investors to recover the cost of income-producing property over time. In the eyes of the IRS, physical assets like buildings lose value due to wear and tear—even if, in reality, the property’s market value is rising.

How Depreciation Works

Residential properties can be depreciated over 27.5 years, and commercial properties over 39 years. David Lawver explains that that means if you own a residential rental property worth $275,000 (excluding land), you could deduct $10,000 per year for 27.5 years.

Depreciation essentially shelters a portion of your rental income from taxes. For instance, if your property earns $15,000 in rental income and you claim $10,000 in depreciation, you may only be taxed on the remaining $5,000—assuming no other deductions or expenses.

Bonus Depreciation and Cost Segregation

Advanced investors often use cost segregation studies to accelerate depreciation. Instead of treating the entire building as a single asset, cost segregation breaks it into components, such as lighting, flooring, and appliances, which may depreciate over 5, 7, or 15 years. David Lawver understands that this front-loads deductions into the early years of ownership, often when investors need them most.

Additionally, bonus depreciation, which allows 100% expensing of certain asset types in the first year, has further supercharged the tax benefits (though this is set to phase out over time unless extended by Congress).

1031 Exchanges: Defer, Don’t Pay

Another powerhouse strategy is the 1031 exchange, named after Section 1031 of the Internal Revenue Code. It allows investors to defer paying capital gains taxes when they sell one investment property and reinvest the proceeds into another “like-kind” property.

The Mechanics

To qualify, the investor must:

• Reinvest the full proceeds from the sale into a new property.
• Identify potential replacement properties within 45 days.
• Close on the new property within 180 days.
• Use a qualified intermediary to facilitate the transaction.

David Lawver emphasizes that by following these rules, investors can defer capital gains taxes indefinitely—rolling profits from one property into another. There is no limit to how many times this can be done, allowing for exponential wealth growth without the tax drag of capital gains payments after each sale.

Legacy Planning and Step-Up Basis

A compelling reason to use 1031 exchanges over the long term is estate planning. If an investor holds the final property until death, their heirs inherit it with a stepped-up basis—meaning the property’s value is “reset” to the market value at the time of death. The result? The deferred taxes are essentially erased.

Opportunity Zones: Long-Term Tax-Free Growth

Created under the Tax Cuts and Jobs Act of 2017, Opportunity Zones were designed to stimulate investment in economically distressed communities. David Lawver explains that they offer tax incentives to investors who redirect capital gains into designated Opportunity Zone Funds.

Key Benefits

1. Deferral of Capital Gains: Taxes on the original capital gain can be deferred until the earlier of the date the Opportunity Zone investment is sold or exchanged, or December 31, 2026.
2. Reduction of Capital Gains: If the investment is held for at least five years, investors can receive a 10% exclusion of the deferred gain. A 7-year hold increases that to 15% (though this benefit was phased out after 2021 unless extended).
3. Tax-Free Growth: Perhaps the most exciting incentive—if the Opportunity Zone investment is held for at least 10 years, any gains from the Opportunity Zone Fund itself are entirely tax-free.

This strategy is ideal for high-net-worth investors with large capital gains looking for a long-term, socially impactful way to grow their wealth.

Other Strategies for Tax Efficiency

While depreciation, 1031 exchanges, and opportunity zones are among the most powerful tools available, David Lawver, founder of Turnkey Ventures, understands that there are additional strategies that contribute to a comprehensive tax-efficient portfolio:

• Passive Activity Loss Rules: Investors may deduct losses from real estate activities if they qualify as real estate professionals or meet income thresholds as active participants.
• Self-Directed IRAs: Holding real estate in a self-directed IRA or solo 401(k) allows for tax-deferred or tax-free growth, depending on the account type.
• Installment Sales: Spreading out the sale of a property over time allows investors to recognize capital gains incrementally, potentially reducing tax exposure in any single year.
• Entity Structuring: Choosing the right business structure—LLC, S Corporation, or partnership—can optimize both liability protection and tax treatment.

Consult a Professional

Tax efficiency is not a one-size-fits-all approach. Strategies must be tailored to each investor’s portfolio, risk profile, and long-term goals. Additionally, tax laws are subject to change, and compliance is key. David Lawver emphasizes that that’s why it’s critical to work with a qualified tax advisor or CPA who specializes in real estate.

With the proper guidance, real estate investors can dramatically reduce their tax burdens—legally—while continuing to grow wealth through strategic acquisition, management, and reinvestment. David Lawver, founder of Turnkey Ventures, understands that the difference between an average investor and a highly successful one is often found not just in what they buy but in how they manage their returns, and tax efficiency is a cornerstone of that process.