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iStock-520129622-umbrella-300x247There are two reasons why borrowing has become the tax-preferred method of financing a sophisticated real estate investment portfolio.

First is the ability to finance improvements with debt, which offers depreciation deductions. Second is the ability to make leveraged distributions through refinancing without paying immediate tax on the proceeds. The tax basis of assets steps up to fair market value at the time of the holder’s death, eliminating the deferred gain, so the income tax deferral upon a refinancing is even more attractive for heirs.

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