InvestmentNews column urges advisors to model real estate recapture before a property goes under contract

The largest asset on many near-retirement balance sheets is the one the advisor does not manage; as of late 2025, Americans 55 and older held roughly 61% of the nation's $48 trillion in real estate wealth—a record concentration, according to Redfin's analysis of Federal Reserve data cited in an InvestmentNews column on exit planning. Alongside the primary residences sit rentals, small commercial buildings and land held for decades, much of it fully depreciated and carrying gains that dwarf the client's brokerage account.

Selling to fund retirement arrives with four taxes at once: federal capital gains, depreciation recapture of 25% on every dollar deducted over the years, the 3.8% net investment income tax, and the state bill. On a long-held property, recapture is often the largest component, the column argues, and the one clients least often price in—which makes after-tax proceeds the number to put in front of a client before the property goes under contract.

Hold until death and the basis steps up—the embedded gain and accumulated recapture are erased, and the heir begins a fresh depreciation clock from the higher basis—but two familiar workarounds leave that on the table. Gifting the property during life carries the original basis to the recipient and forfeits the step-up, turning a tax that waiting would have erased into one the family pays; a trust determines who inherits and keeps the asset out of probate, but the basis, the depreciation schedule and the recapture exposure do not move.

Borrowing against the property is the direct route to equity without a sale: loan proceeds are not taxable, the property stays in place, and the step-up still arrives at death; debt service is the only cost, per the column. Section 1031 offers another path by deferring the gain into replacement real estate, but the replacement has to be real estate, and most retirees do not want another building to manage. A Delaware statutory trust holds a fractional interest in a large, professionally managed property and qualifies as replacement property; from there a 721 exchange converts that interest into operating partnership units in a REIT without triggering tax, leaving the client with a diversified holding that can be sold in pieces.

The three paths point to the same sequencing: model the after-tax outcome before the contract, not after. Against the wider arithmetic, that is only a narrow part of the work; as this publication has argued, roughly one percent of household net worth actually changes hands each year, which suggests the step-up is the default outcome for a large share of these holdings and the benchmark any 1031 exchange or loan against the building has to beat.