Key points:
- Real estate tax benefits such as 1031 exchanges and Opportunity Zones remain top strategies for deferring and eliminating capital gains.
- Cost segregation studies can accelerate depreciation deduction benefits.
- Partnering with a specialized CPA is essential for navigating new tax rules for real estate investors.
Updated January 18, 2026
Interview with Larry Pendleton, Jr. CPA
Larry Pendleton, Jr., is the co-founder of P.C. Financial Services, LLC. For more than two decades, he has provided cost segregation studies, fractional CFO services, accredited investor validation, and tax preparation. In the interview below, he discusses how 1031 exchanges, opportunity zone investments and cost segregation studies can provide efficient tax savings for real estate investors.
Enjoy!
Q: How do 1031 Exchanges help build wealth?
Larry: Normally, taxpayers are required to pay tax on the gain from the sale of property. However, IRS Code Section 1031 allows you to use the gains from the sale of an investment property to purchase a comparable property of equal or greater value within a certain timeframe. You can delay the tax liability and acquire comparable properties that produce more cash flow.
Note from The Little CPA: The IRS term for comparable property is “like-kind.” For example, an apartment building would generally be like-kind to another apartment building. However, real property in the United States is not like-kind to real property outside the United States. The IRS also has specific rules related to like-kind exchanges between related parties. Discuss with your tax adviser.
2026 Update Note: Under the One Big Beautiful Bill Act (OBBBA), 1031 exchanges remain fully intact for real estate. To complete a successful 1031 exchange, you must first hire a Qualified Intermediary (QI) to hold the sale proceeds, as touching the funds personally will immediately disqualify the tax deferral. You then face two rigid, concurrent deadlines: you must formally identify potential replacement properties in writing within 45 days of your sale and finalize the purchase of a replacement property within 180 days.
Q: What are Opportunity Zones and why are they popular?
Larry: Opportunity Zones offer tax breaks to those who invest in economically challenged areas. Unlike 1031s, you can use capital gains from the sale of any type of investment—stocks, crypto, or businesses—to invest in an Opportunity Zone. Your Opportunity Zone investment allows you to –
- delay paying taxes on the capital gains earned on the original property sale,
- discount the taxes on those gains and
- take advantage of tax-free appreciation on the new investment.
Note from The Little CPA: Opportunity Zone incentives work by allowing you to reinvest capital gains—the profit from selling an asset like stock or a business—into a Qualified Opportunity Fund (QOF) to delay and reduce your tax bill. By reinvesting within a certain timeframe, you defer paying taxes on that initial profit until you sell the fund or reach a government-mandated deadline. If you hold the investment beyond the maximum timeframe, you pay zero capital gains tax on any new profit the fund makes, essentially making the appreciation on your investment tax-free.
2026 Update Note: 2026 is a critical “deadline year” for the original program; deferred gains from earlier years must be recognized by December 31, 2026. However, the OBBBA has made the program permanent, introducing “OZ 2.0” with new zone designations beginning in 2027.
Q: Can you explain the benefit of Cost Segregation?
Larry: Imagine being able to take a cake and break it back down to its original ingredients. That’s what a cost segregation study does; it breaks a building into smaller assets like appliances, cabinets, and fences. By knowing how much each component costs, investors can accelerate the depreciation expense and take much larger deductions in the first few years of ownership.
Note from The Little CPA: Standard depreciation normally spreads the cost of a building evenly over 27.5 years (residential) or 39 years (commercial), providing a small, steady tax deduction each year. A cost segregation study provides a better benefit by reclassifying parts of the building—like flooring, lighting, and landscaping—into shorter 5, 7, or 15-year recovery periods, which front-loads your deductions to maximize immediate cash flow. To get one, you should hire a specialized firm that employs both engineers and tax experts to perform a detailed physical inspection and financial analysis of your property.
2026 Update Note: The OBBBA permanently restored 100% bonus depreciation for property placed in service after January 19, 2025. This allows investors to write off the entire cost of many property components identified in a cost segregation study in the very first year.
About the Expert
Larry Pendleton Jr., CPA has nearly a decade of experience in tax consulting and preparation. As a multifamily investor involved in syndications and joint ventures, he implements the same tax strategies for his clients that he uses to maximize his own returns. Larry is married to his wife, Whitney, and is the proud father of two sons, Larry III and Wesley.
Disclaimer: This material is for informational purposes only and is not intended as tax, legal, or accounting advice. Consult your own advisors before making significant financial commitments.
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Past Performance: Any examples of tax savings or investment returns are for illustrative purposes only. Past performance does not guarantee future results.
