Welcome to passive real estate investing, the show where busy people like you learn

how to build substantial passive income while creating wealth for the long term.

And now here's your host, Marco Santorelli.

Hello friends and welcome to another. Now here's your host, Marco Santorelli's.

Hello friends and welcome to another episode of Ask Marco.

Today we have a question that probably stumps a lot of people

because there's a lot of confusion

about the depreciation tax savings that we get and benefit from real estate investing.

So today's question comes from Jonathan and he says, hi Marco, love the podcast.

I'm in the Washington, D.C. area, own three condos, two perform well, one breaks even,

though it's appreciated about 25% since I purchased it, also own a single family home out of the area.

I'm going to sell the poor performing condo and I'm considering a 1031 exchange as I'm planning to take the proceeds and invest in one or maybe two properties out of state.

It seems like there are some major

trade-offs with the 1031 exchange, just wondering if you can explain the

pros and cons. I'll do my best. For example, I would get to forego a $40,000 capital gain if I do the 1031 exchange.

I also have about $35,000 of paper losses on that condo that I'd be able to carry over into the new property.

On the other hand, my understanding, per my tax guy, is that my entire existing depreciation schedule would also move to the new property.

So instead of getting a new 27 and a half year timeline against a new structure

where the improvement would be larger, I'd be carrying

over my old depreciation schedule, 22.5 years, against a smaller quote unquote improvement.

Bottom line, I'd avoid a capital gain tax hit and would

carry over some losses but would lose tons of future depreciation which would shield

...