Tax Strategies for Real Estate Transactions
Our firm guides clients to align entity choice, financing, and exit strategy with long-term tax goals from day one. The Wilson Firm’s attorneys apply cost segregation and depreciation planning to accelerate deductions while preparing for recapture at sale. We draft and review partnership and JV documents to reflect §704(b) allocations and capital mechanics. Every agreement is built with clear tax terms for prorations, transfer taxes, and reporting—keeping closings smooth and filings accurate
Understanding Real Estate Transactions
Real estate transactions involve complex tax considerations that affect financing, ownership structure, and long-term returns. Strategic planning from the outset helps align tax outcomes with investment goals and compliance requirements.
Effective planning ensures that tax obligations are clear, deductions are maximized, and transactions support long-term financial goals.
Key Tax Planning Elements:
- Entity selection: Choosing between partnerships, corporations, or disregarded entities to manage liability and tax treatment
- Depreciation and cost segregation: Accelerating deductions through asset classification and timing
- Recapture planning: Preparing for potential tax liability when assets are sold
- Partnership and JV structuring: Reflecting §704(b) allocations and capital account mechanics in governing documents
- Contract tax terms: Addressing prorations, transfer taxes, and reporting obligations in purchase and joint venture agreements
Importance of Real Estate Transactions
Real estate transactions carry significant tax consequences that impact cash flow, investment returns, and long-term planning. Whether acquiring, developing, or exiting property, strategic tax alignment is essential.
Why It Matters:
- Entity structure affects liability and tax treatment.
- Depreciation and cost segregation accelerate deductions.
- Recapture rules influence exit tax exposure.
- Partnership and JV terms shape income allocations and compliance.
- Contract tax clauses ensure smooth closings and accurate filings.
Thoughtful planning around real estate transactions helps preserve value, reduce risk, and support financial goals across the full investment lifecycle
How The Wilson Firm Helps with Real Estate Transactions
Our firm advises clients on tax planning for real estate transactions, including entity structuring, financing, and exit strategies. Our attorneys draft and review partnership and joint venture agreements to reflect §704(b) allocations and capital account mechanics. We assist with cost segregation and depreciation planning to support accelerated deductions and prepare for potential recapture. Each agreement is reviewed for tax terms related to prorations, transfer taxes, and reporting obligations to align with closing and compliance requirements.
Case Example
In 2023, Tilman Fertitta's Fertitta Entertainment acquired the River Oaks District, a luxury mixed-use development in Houston, Texas, for $310 million from Hines, marking one of the largest real estate deals in the state that year. The transaction involved 300,000 square feet of retail space, 67,000 square feet of offices, and 279 apartments, requiring careful navigation of zoning, financing, and tax implications under Texas law. Legal teams ensured compliance with Texas Property Code for title transfers and minimized capital gains taxes through strategic structuring. The deal enhanced Fertitta's portfolio while preserving the property's high-end status, demonstrating successful due diligence in environmental assessments and lease reviews. This case highlights how expert legal assistance can facilitate seamless multi-million-dollar real estate transactions in Texas's competitive market.
Frequently Asked Questions
Most investors use an LLC or partnership for liability protection and flexible allocations. S corps typically don’t pair well with real estate due to basis/distribution rules; C corps can trap gains. Model operations, financing, and exit before choosing.
Recapture is tax on prior depreciation taken. Section 1245 property is generally recaptured at ordinary income rates; unrecaptured §1250 gains on real property can be taxed up to a capped rate. Planning can mitigate the impact but not eliminate it.
Contracts typically prorate rents, taxes, and operating expenses to the closing date and assign who pays transfer/recording taxes and fees. Clear terms reduce post-closing disputes and keep filings accurate.
Losses may be limited by passive activity rules unless you qualify as a real estate professional or meet special active participation thresholds. Basis and at-risk limits also apply; unused losses can carry forward.
Beyond income tax, transactions can trigger transfer taxes, sales/use tax on certain improvements or fixtures, and registration/filing obligations. Multistate ownership requires tracking nexus and apportionment to avoid unexpected assessments.
