8 “Make or break” tax strategies for real estate agents and brokers to round out 2021

Financial Planning Dentist

Key points in this article:

  1. The effects of rising home prices on Real Estate Agents tax liabilities
  2. Long-term methods for reducing your overall tax exposure
  3. Compensation alternatives that save on taxes

We have been meeting with several real estate professionals. Rising home prices are leading to higher commissions and greater tax liability. One common theme has been that each of them thinks, “their CPA has done everything they can to help” but very few of them have installed the tax ecosystem that will help them avoid the most taxes. While the CPAs have done what they can to help identify and capture deductions in the rearview mirror, InSight is working with these real estate professionals to get prepared for 2021 and beyond with far more lucrative options for tax mitigation and investing.

Here are the eight tax conscious strategies the real estate agents need to run, not walk, to get set up by the end of the year:

Self Directed IRAsIt’s no secret that Real Estate professionals love owning real estate, it’s close to home, they are fluent in the market, and often can front-run great opportunities. While we think there is value in diversity, we don’t think you should break away from something that works. The issue is, we’ve worked with several agents and brokers who see huge gains in the assets in the last decade, only to turn around and give 20%-40% back to the government in the form of capital gains taxes and depreciation recapture. Savvy brokers need to get better about working with a CFP® to make a forward-looking plan to mitigate those taxes and a Self-Directed IRA might be part of that plan. 

SEPs, Corporate 401(k) or Solo 401(k)Most of the brokers we work with are 1099 employees, and if you are, you’re going to have to be in the driver’s seat regarding what method of tax-advantaged savings vehicles you use. What’s unique for Agents we work with, is that the strategy might change from year to year. One of our clients used a SEP in 2019 then a Solo 401(k) in 2020 in order to match the changes in her personal income. This is fine, as each of these methods can work to optimize the savings rate and maximize the success rate of her plan. The key is working closely with their CFP® to know what the year is going to look like, and how best to account for the income.

OZ funds – Use your capital gain proceeds from a recent sale and invest it into opportunity zone funds, real estate, or businesses. The benefit now is the ability to defer your current tax liability until 2026 while also receiving tax-free growth on your investment after holding it for 10 years. Real Estate agents often have personal assets that have accrued capital gain liabilities in the past. This is a program that allows them to mitigate the past liability and avoid some of the taxes they will owe as the new asset grows in value. 

Diversity – Becoming wealthy and staying wealthy means diversifying your income streams and risk into different sectors, industries, and accounts in order to give investors flexibility with liquidity, estate planning, tax mitigation, and correlation of returns between assets. Several of the agents we work with have had fantastic success with real estate assets which in turn causes them to neglect other, more tax advantageous and growth capable vehicles. 

Cash Balance Plans – Great for Real Estate owners that want to “super fund” (2021 Contribution Limit is $281,000) their retirement while simultaneously reducing their tax liability. This is an underutilized strategy for agents. Any of them will have huge years here and there and are without the tax ecosystem to get those big commission checks into a tax advantages account. A single year of being able to set aside over $200k into your tax-advantaged retirement account can make up for about 5-7  years of neglecting it. 

Capital Gain Harvesting – Capture gains proactively (death and gifting will soon be realization events). Most of us have heard of tax loss harvesting but an equal and effective way to mitigate future tax liabilities can be to realize gains along the way in order to reset the basis in investments. There will be times when strategically capturing your gains and accepting your losses can help you pay lower taxes each year. 

Private Placement Life Insurance – An incredible way to fund a life insurance product that gives you tax-free growth and access to the cash value. The reason Real Estate agents like using this form of tax-free growth is it gives them the freedom and flexibility to fund other real estate ventures, grow their brokerage, or find other investments.


Many of these methods can be used for most small business owners and entrepreneurs, but for real estate agents working in this climate of elevated home prices these are our “run don’t walk” ideas for getting yourself in the best possible tax position through the end of the year. 

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