Tax strategy isn’t just about compliance — it’s about timing, structure, and knowing when to deploy the right tool. We recently hosted a webinar with Miguel Alexander Centeno, Founder of Shared Economy Tax, joined by Ari Rubin, Founder & CEO of Flock Homes, to unpack two of the most powerful (and often misunderstood) strategies in real estate tax planning: Cost segregation and Section 721 exchanges.
What stood out wasn’t just how effective these tools can be on their own, but how strategically aligned they become when used at the right stage of an investor’s journey. For many property owners, the difference between reactive tax filing and proactive planning can mean hundreds of thousands of dollars over time.
Why Cost Segregation Still Matters in 2026
Cost segregation is frequently described as a way to accelerate depreciation, but that description only scratches the surface. At its core, cost segregation is about controlling the timing of deductions — shifting tax benefits into earlier years when they can be reinvested or deployed more strategically.
By identifying components of a property that qualify for shorter depreciation lives (5, 7, or 15 years instead of 27.5 or 39), owners can front-load depreciation and significantly reduce taxable income in the near term. This can create meaningful cash flow relief during periods of growth, expansion, or transition.
During the webinar, Miguel emphasized that cost segregation is most effective when viewed as part of a broader tax strategy — not as a standalone tactic. When aligned with an investor’s income profile, holding period, and exit plans, it becomes a powerful planning lever rather than just a one-time deduction play.
Who Cost Segregation Actually Makes Sense For
One of the most persistent misconceptions around cost segregation is that it’s only worthwhile for large, institutional-scale properties. In reality, eligibility is far less about property size and far more about context.
Cost segregation tends to be most impactful for owners who:
- Generate significant taxable income from real estate or other ventures
- Expect income to increase in future years
- Plan to hold the property long enough to benefit from accelerated deductions
- Are actively reinvesting capital or scaling their portfolio
It’s also increasingly relevant for owners who are thinking ahead to a transition — whether that’s a sale, a 1031 exchange, or a move into a passive structure through a 721 exchange.
What matters most is not whether cost segregation can be done, but whether it should be done at a specific point in time.
The Importance of Timing and “Look-Back” Studies
Another critical insight discussed during the webinar was the role of timing. While many owners assume cost segregation must be performed in the year of purchase, the IRS allows for look-back studies that can retroactively capture missed depreciation from prior years.
This opens the door for owners who acquired property years ago but are now reassessing their tax strategy due to rising income, portfolio growth, or upcoming transitions. However, this flexibility also introduces complexity.
Accelerated depreciation can increase depreciation recapture if a property is sold outright. That doesn’t mean cost segregation should be avoided — it means it should be planned in context, especially when future exchanges or exits are being considered.
This is where proactive planning becomes essential. Decisions made today directly influence optionality tomorrow.
Cost Segregation as a Strategic Decision, Not a Tactical One
The most sophisticated investors we work with don’t ask, “Can I do cost segregation?” They ask, “How does this decision support my next move?”
When viewed strategically, cost segregation can:
- Improve near-term cash flow without increasing leverage
- Offset income spikes from other businesses or investments
- Fund future acquisitions or improvements
- Create flexibility for future exchanges or transitions
Used thoughtfully, it’s less about maximizing deductions in a single year and more about optimizing tax exposure over time.
Understanding Section 721 Exchanges Beyond the Basics
Section 721 exchanges are often compared to 1031 exchanges, but they serve a fundamentally different purpose. Rather than rolling gains into another actively managed property, a 721 exchange allows owners to contribute property into an operating partnership in exchange for operating partnership units.
Ari Rubin walked through how this structure can support investors who are ready to transition away from active management without triggering an immediate taxable event. In many cases, this means gaining access to professional management, diversification, and continued participation in real estate income — without the operational burden.
For owners who have spent years actively managing properties, a 721 exchange can represent a strategic shift rather than an exit.
How Cost Segregation and 721 Exchanges Work Together
One of the most valuable parts of the webinar was the discussion around sequencing. Cost segregation and 721 exchanges are often viewed separately, but when coordinated properly, they can complement each other.
Cost segregation can maximize depreciation benefits during the ownership phase, while a 721 exchange can facilitate a tax-efficient transition to passive ownership later. The key is understanding how accelerated depreciation today affects flexibility tomorrow.
This is where long-term planning becomes critical. The goal isn’t to avoid taxes indefinitely — it’s to manage them intelligently while aligning with broader financial and lifestyle goals.
Cash Flow, Flexibility, and Long-Term Outcomes
Throughout the discussion, one theme remained consistent: tax strategy should evolve as your goals evolve.
Whether an owner is focused on maximizing current cash flow, preparing for a liquidity event, or simplifying their portfolio, the right combination of strategies can materially change outcomes.
Better tax planning doesn’t just reduce liability — it creates room to make better decisions. More liquidity, more flexibility, and fewer forced moves driven by tax consequences.
What This Means for Real Estate Owners in 2026
As strategies like cost segregation and 721 exchanges become more widely discussed, the real differentiator isn’t awareness — it’s execution. Knowing how these tools fit into your specific situation requires thoughtful planning and coordination.
If you’re considering cost segregation, exploring a 721 exchange, or simply reassessing your long-term tax strategy, early planning matters. To see how these strategies work in practice, you can watch the full webinar below, where our team breaks down real-world examples and considerations for real estate owners in 2026.
If you’re considering cost segregation, exploring a 721 exchange, or reassessing your broader tax strategy, working with the right partners matters. You can book a consultation with Shared Economy Tax to evaluate how these strategies apply to your situation, or learn more about Flock Homes and 721 exchanges if you’re exploring long-term portfolio flexibility. We’re committed to helping real estate owners move beyond surface-level strategies and into intentional, long-term planning. The right tax decisions don’t just save money — they support better outcomes over time.
