CASE STUDY

In the mid 1990’s Larry and Joanne were personally managing 3 local apartment buildings. Larry handled coordinating the maintenance and sometimes doing the necessary work himself. Joanne managed the renting of the units and did the bookkeeping and leasing. The good news was that they were making money. The not so good news was that the net rental income was taxable.

After several years of growing income tax liability we conducted a series of planning and strategy meetings during which we outlined a path to exchange the existing holdings into bigger properties that will generate enough depreciation to shelter the net rental income completely. And so we did. Not only were we able to generate tax sheltered income but we were also able to achieve our other two investment objectives of eliminating their day-to-day management responsibilities and better yet, improve their overall cash flow.

Since the early 1990’s we have had to coordinate a few more exchange transactions to maintain the necessary tax shelter. In doing so we have had the opportunity to improve the quality of the properties acquired and currently own.

More recently we have instituted a Family Limited Partnership (FLP) to take ownership of the underlying investment properties and structured it in such a fashion as to include Larry and Joanne’s heirs. The FLP will be instrumental in the family’s succession planning and better yet will also play a key role in reducing the family’s estate tax exposure.