Navigating Capital Gains & Real Estate Taxes: What Investors Need to Know

From The Legacy Investment Team Podcast, Episode 4 with guest Scott Felts, CPA at Blankenship CPA.

When it comes to real estate investing, understanding your tax position is just as important as finding the right property. Capital gains, depreciation, and the right planning can mean the difference between keeping more of your profit or giving it away in taxes.

In this episode of the Legacy Investment Team Podcast, we spoke with Scott Felts of Blankenship CPA to unpack key tax considerations for both new and experienced investors.

Meet Scott Felts, CPA

Scott is a Nashville native with a unique career path—from athletic training and sports ministry to meeting his wife in Germany and eventually finding his calling in tax advising. Today, he’s part of the Blankenship CPA team, which serves clients across Middle Tennessee with offices in Brentwood, Columbia, Dixon, Goodlettsville, Mount Juliet, Murfreesboro, Nashville, and Berry Hill.

Blankenship operates with a collaborative model, allowing clients to benefit from the expertise of multiple tax professionals—not just a single advisor.

Foundational Tax Considerations for Real Estate Investors

Scott’s first piece of advice?

“Know and understand what you’re investing in.”

Before considering tax implications, you must clarify your investment’s nature:

• Active vs. Passive – Most real estate investments are considered passive, meaning your ability to deduct losses may be limited under Passive Activity Loss (PAL) rules.

• Loss Carryovers – Losses not deductible in the current year are typically carried forward until you have passive income to offset them, or until the investment is sold.

• Depreciation – A core tax benefit of real estate. Structures (not land) depreciate over time, reducing taxable income.

  Key tip: Even if you don’t claim depreciation, the IRS will assume you did when calculating your taxable gain at sale—so take it.

Maximizing Depreciation Benefits

Depreciation is not “one-size-fits-all.”

For large properties, cost segregation studies can accelerate depreciation by separating certain building components (like appliances or fixtures) into shorter tax lives.

Both active and passive investors benefit from depreciation, but the impact depends on each investor’s overall tax situation. Some may prefer to take it now; others may defer.

The 1031 Exchange: Deferring Capital Gains

A 1031 exchange allows you to sell an investment property and reinvest the proceeds into another like-kind property while deferring capital gains taxes.

Scott stresses one crucial point:

“You have to plan before the sale. You can’t sell first and decide later.”

Key requirements:

• Identify replacement properties within 45 days of the sale.

• Complete the exchange within 180 days.

• Funds must be held by a qualified intermediary—you can’t take possession.

• “Like-kind” rules are strict: residential to residential, commercial to commercial, etc.

Timing Your Tax Planning

If you’re reading this early in the year:

• Contact your CPA before mid-February for detailed discussions—after that, tax pros are deep into filing season.

• If you miss the window, aim for June/July or late fall to strategize before year-end.

• For bigger investments, build your “three-legged stool”:

  
  

  1. CPA for tax strategy.

  2. Attorney for legal structuring.

  3. Investment advisor for deal analysis.

  
  

Building these relationships early ensures your advisors understand your goals and can coordinate effectively.

Final Takeaways

• Plan early—especially for moves like a 1031 exchange.

• Understand your classification as active or passive to manage loss limitations.

• Leverage depreciation—and consider cost segregation for larger assets.

• Work with a team—tax, legal, and investment professionals collaborating on your behalf.

As Scott puts it:

“Transactional relationships are okay, but I love working with people who want to understand what they’re getting into.”

If you’re ready to dive deeper into tax-smart investing, connect with the Legacy Investment Team at legacyinvestmentteam.com, or reach out to Blankenship CPA for specialized tax advice.