The Cost of Paying Taxes vs. Reinvesting Your Real Estate Gains

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Let's say you sell your duplex for $1,000,000 after owning it for 27.5 years.

Due to depreciation, your cost basis could be zero. 

In this case, the sale of your property could trigger a significant tax bill,

potentially around 30% depending on your state.

That means you might lose $300,000 of your investment to taxes.

But what if you could avoid paying those taxes?

What if you could reinvest that $300,000

into a new real estate project and let your investment grow?

In this hypothetical scenario, we’ll assume the new property provides:

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• 5% annual cash flow from rental income, and

• 5% annual compounded growth in property value.

• ​​We call this hypothetical real estate investment scenario: “5% & 5%.”

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What Happens in the First 9 Years?

 

 

 

Let’s break this down over a 9-year period.

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1. Rental Income

Over 9 years, at 5% cash flow, you would earn:
9 years x $15,000 = $135,000 in cumulative rental income.

 

2. Property Value Growth

If the property grows at a 5% compounded rate each year, your initial

$300,000 investment would grow to: $465,390 in property value after 9 years.

 

3. Net Equity Growth

The difference between your original investment ($300,000)

and the new property value ($465,390) is:
$465,390 - $300,000 = $165,390 in equity growth.

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Missed Opportunity of $300,390

 

 

 

 

If you had paid the taxes upfront and sold your duplex, you would have missed out on

these additional gains. The missed opportunity would include:

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• $135,000 in rental income over 9 years

• $165,390 in property value growth

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In total, you would have missed out on $300,390 in additional

assets and wealth that could have been generated by reinvesting.

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What Could You Have After 9 Years?

 

 

 

By reinvesting instead of paying taxes,

here’s what your financial situation might look like after 9 years:

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• $135,000 in rental income

• $465,390 in property value growth

Total Additional Assets = $600,390

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Had you simply paid the taxes,

you would have walked away with $700,000 (after taxes)

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But with the reinvestment strategy,

your total assets could grow to $600,390

in addition to your original $700,000 investment.

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The Big Missed Opportunity

 

 

Many people, including some CPAs, suggest simply "paying the taxes and moving on."

However, this approach could mean missing out on significant wealth-building opportunities.

In this hypothetical scenario, by reinvesting your gains, you avoid the immediate tax hit and instead create wealth through cash flow and compounded growth.

Had you saved every dime of your rental income, you could have created an additional

$600,390 in net worth — money that would stay in your estate and not go to Uncle Sam.

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Don't Miss Out on Huge Opportunities

 

 

At Tax Wise USA, we specialize in helping clients

keep more money in their estates and out of the hands of the IRS.

Reinvesting your real estate gains can open doors to new opportunities,

more cash flow, and long-term wealth for you and your family.