Unlocking Tax-Efficient Wealth in Real Estate

In this episode of Multiple Perspectives, host David Lofgren sits down with Thomas Castelli, CPA, real estate investor, podcast host, and Partner at Hall CPA Group, to unpack the powerful intersection of tax strategy and passive real estate investing. From leveraging depreciation and cost segregation studies to the smart allocation of investments across taxable and retirement accounts, Thomas shares practical insights that help investors maximise their after-tax returns. He also introduces the “Buy Box Framework” for aligning deals with personal goals and outlines the three pillars of portfolio diversification. This conversation is a must-listen for limited partners seeking to build resilient, tax-efficient real estate portfolios.

What You'll Learn:

How to leverage depreciation and cost segregation to maximize tax benefits
The strategic difference between investing through IRAs vs. taxable accounts
The "Investment Buy Box" framework for evaluating deals based on growth vs. income
How to assess sponsor quality through multiple market cycles and track records
The three-pillar approach to diversification: sponsors, asset classes, and markets
Why understanding market timing and interest rates is crucial for optimal timing
The tax implications of debt vs. equity investments in commercial real estate
How to avoid common pitfalls in special allocations and unrelated business income tax
The strategic advantage of waiting for full investment cycles before deepening sponsor relationships

Thomas Castelli is a CPA, Partner at Hall CPA Group, and co-host of the Tax Smart REI Podcast. With over a decade of experience as both a tax advisor and active investor, he specialises in helping limited partners and commercial real estate investors maximise after-tax returns. Combining technical expertise with hands-on investing, Thomas guides clients through cost segregation, fund structuring, and strategic allocations, empowering high-income professionals and real estate entrepreneurs to scale wealth efficiently while navigating complex tax landscapes.

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Episode Highlights:

02:15 Leveraging Depreciation for Tax-Efficient Real Estate Investing

Thomas explains how depreciation acts as a powerful tax shelter in commercial real estate investments, allowing investors to generate positive cash flow while showing paper losses to the IRS. For high-earning professionals, this creates an opportunity to reduce their effective tax rate from 37% plus state taxes significantly through passive real estate investments. The tax benefit comes from depreciation being a non-cash expense that exists only on paper, while the underlying real estate typically appreciates in value. Through cost segregation studies and bonus depreciation, investors can accelerate these tax benefits to offset both rental income and other passive income.

09:45 The Investor's Buy Box Framework

Rather than chasing any available deal, Thomas emphasizes developing a clear "buy box" of investment criteria based on your specific goals around growth vs income, sponsor quality, and target returns. High-net-worth investors must first determine if they're seeking appreciation potential or steady cash flow, as this fundamentally shapes which opportunities fit their strategy. The framework requires evaluating sponsor track records through multiple market cycles, not just recent performance. Institutional-quality sponsors with 20+ year histories tend to navigate market challenges more successfully than newer operators. This systematic approach helps investors filter the tremendous deal flow available and align investments with their financial objectives.

15:20 Strategic Allocation of Real Estate Investments

Thomas advises investors to be strategic about which accounts hold different types of real estate investments, as the tax treatment varies significantly. High-income professionals should consider holding equity investments in personal accounts to maximize depreciation benefits, while debt investments may be better suited for retirement accounts. Special attention must be paid to unrelated business taxable income (UBTI) when investing through IRAs, as leveraged real estate can trigger unexpected taxes. For optimal tax efficiency, Thomas recommends keeping passive real estate investments outside retirement accounts while using IRAs/401 (k)’s for interest-generating investments. This allocation strategy helps maximize after-tax returns across an investor's entire portfolio.

31:00 The Three Pillars of Real Estate Portfolio Diversification

Thomas outlines three critical dimensions for diversifying commercial real estate investments: sponsors, asset classes, and markets. For sophisticated investors, the key is starting with sponsor diversification by investing with multiple operators and waiting for full investment cycles before increasing allocation to any single sponsor. Asset class diversification requires deep understanding, and Thomas warns against investing in asset types you don't fully grasp, sharing his own costly lesson. Geographic diversification through multi-market funds helps protect against local market risks that could impact concentrated positions. This comprehensive approach to diversification helps investors build resilient portfolios aligned with their risk tolerance.

Episode Resources:

Multiple Perspectives is brought to you by https://equitymultiple.com/
Thomas Castelli on LinkedIn
Hall CPA Group Website
David Lofgren on LinkedIn