The good news? With the right planning, you can significantly reduce your tax burden, reinvest more of your capital, and ensure your next chapter starts from a position of strength. Whether you’re retiring, transitioning into a new venture, or diversifying your investments, here are proven strategies to minimize taxes and maximize your net proceeds from a business sale.

1. Understand Your Tax Exposure Before You Sell

The first step in protecting your proceeds is knowing exactly what taxes you might face. The structure of your business (corporation, LLC, partnership, sole proprietorship) and how the deal is structured (asset sale vs. stock sale) will have a major impact on your tax bill.

Common taxes include:

• Federal Capital Gains Tax (15–20% depending on income)

• Depreciation Recapture Tax (25% on prior depreciation)

• State Taxes (in California, as high as 13.3%)

• Net Investment Income Tax (NIIT) (3.8% for certain income levels)

• Ordinary Income Tax (if parts of the sale are treated as income rather than capital gain)

At Johnston Pacific, we recommend working closely with your CPA well before your business hits the market. A thorough review of your tax exposure, business assets, and potential deal structures can reveal opportunities to lower your tax bill before a buyer even comes into the picture.

2. Structure the Deal Strategically

When selling a business, how the sale is structured can be just as important as the price you receive.

• Stock Sale: Often preferred by sellers, as it typically results in capital gains treatment and avoids double taxation for corporations.

• Asset Sale: Common for buyers, but can trigger ordinary income taxes on certain assets (like inventory or receivables) and depreciation recapture.

A well-negotiated deal can align buyer and seller interests while minimizing your overall tax hit. Johnston Pacific works with your legal and tax team to help position the transaction in a way that’s both marketable and tax-efficient.

3. Use an Installment Sale to Spread Out Gains

If you don’t need the full proceeds right away, an installment sale can spread capital gains over several years. This approach:

• Keeps you in a lower tax bracket annually

• Reduces exposure to the NIIT

• Allows you to earn interest on the deferred balance

We help our clients evaluate buyer creditworthiness and structure terms that protect your interests while creating meaningful tax benefits.

4. Leverage a 1031 Exchange for Business-Related Real Estate

If your business owns real estate, you may be able to defer taxes on that portion of the sale by using a 1031 Exchange to reinvest into another qualifying property. This strategy can allow you to unlock equity from your business sale while continuing to grow wealth in real estate—without taking the immediate tax hit.

Our team has deep expertise in executing 1031 Exchanges and can help you align your business and property sale timelines for maximum efficiency.

5. Consider Opportunity Zones for Long-Term Gains

For sellers looking to reinvest in new ventures or real estate, Qualified Opportunity Funds (QOFs) can be a way to defer and potentially eliminate taxes on part of your gains.

By rolling eligible gains into a QOF:

• You defer paying taxes until 2026

• Any appreciation in the new investment can be tax-free if held 10+ years

While not the right fit for everyone, Opportunity Zones can be a smart tool for those looking at long-term reinvestment strategies.

6. Explore Charitable and Estate Planning Strategies

If part of your motivation in selling is to fund charitable causes or pass wealth to the next generation, integrating tax-advantaged giving and estate planning can make a big difference.

Options include:

• Charitable Remainder Trusts (CRTs) for upfront tax deductions and lifetime income

• Gifting business interests prior to sale to reduce your taxable estate

• Donor-Advised Funds (DAFs) for flexible charitable giving

By aligning your sale strategy with your personal financial and legacy goals, you can keep more of your wealth while making a lasting impact.

The Johnston Pacific Advantage

While Johnston Pacific is best known for our expertise in commercial real estate, we also serve as strategic advisors for business owners whose transactions involve real estate components or complex asset sales. Our network of trusted CPAs, attorneys, and financial planners—combined with our deep transactional experience—ensures that your business sale is handled with the same precision and tax-conscious strategy we bring to every real estate deal.

Thinking about selling your business?
Before you take the first step, talk to Johnston Pacific about a confidential review of your options. We’ll help you identify the best structure, minimize taxes, and set you up for the strongest financial outcome in your next chapter.

While reducing tax liability is valuable on its own, these provisions go much further. They release trapped capital, improve balance sheets, and empower investors to make bold moves, whether acquiring new properties, upgrading existing assets, or restructuring portfolios for better performance.

Immediate Expensing = Immediate Cash Flow

Let’s take a deeper look at how this works in practice.

When real estate owners can write off 100% of qualified improvements in the first year, they reduce their taxable income substantially. This results in significantly lower tax bills, meaning more capital is retained in the business instead of being sent to the IRS.

For example, if a developer invests $1 million in qualifying upgrades and is in a 35% tax bracket, the tax savings could reach $350,000. That’s $350,000 in real, spendable cash, available in year one, that can be used to finance new acquisitions, cover operating expenses, or strengthen the business’s financial position.

In an industry where liquidity and timing are everything, that kind of flexibility is a game changer.

Why Cost Segregation Matters More Than Ever

One of the most effective ways to fully capitalize on these enhanced tax benefits is through cost segregation studies.

Cost segregation is a method of accelerating depreciation by identifying components of a building that qualify for shorter recovery periods (e.g., 5, 7, or 15 years instead of 39 years). This means more of a property’s value can be written off faster, especially when combined with bonus depreciation.

Cost segregation isn’t new, but the recent tax changes have made it more valuable than ever. For any investor who has purchased, built, or renovated commercial property since the BBBA’s enactment, a cost segregation study can uncover hundreds of thousands, even millions, in potential deductions.

Real Estate Investing with an Edge

Cash flow is the engine of any successful real estate venture. Whether you’re syndicating deals, managing a REIT, or simply building your portfolio, the ability to generate capital internally gives you a distinct competitive advantage. Johnston Pacific Commercial Real Estate, Inc. can assist you in expanding your portfolio or get you started on commercial real estate investing.

Here’s what enhanced cash flow enables:

• Faster project scaling
  Investors can roll gains from one property into the next more quickly, creating a compounding effect on growth.
• Reduced reliance on external financing
  Strong cash reserves reduce the need for costly debt and allow investors to negotiate better terms.
• Strategic reinvestment
  Instead of waiting years for depreciation benefits to accumulate, investors can redirect savings immediately into new value-creating opportunities.
• Improved investor relations
  For syndicators or fund managers, showing early returns through strong cash flow builds confidence and helps attract future capital.

As Jeff Pori from Kingsbarn Realty Capital put it:

“Our clients are now positioned to reinvest sooner, improve their ROI faster, and keep their projects moving forward with less financial friction.”

A New Era of Strategic Tax Planning

What we’re seeing is not just a tax benefit, it’s a strategic opportunity. Real estate professionals who proactively align their tax planning with their growth strategies will find themselves better positioned to navigate the cycles of the market.

This is particularly true in high-cost markets, where renovation budgets often exceed millions and traditional depreciation schedules offer little short-term relief. By leveraging cost segregation and immediate expensing, investors can unlock dramatic cash flow improvements even in markets with compressed cap rates and rising construction costs.

Final Thoughts

The combination of restored 100% bonus depreciation, expanded Section 179 expensing, and cost segregation is a powerful trio for real estate investors looking to gain every possible edge.

What used to be long-term tax planning now delivers short-term results, and those results can fund the next deal, strengthen your position in a competitive market, and turn real estate investments into high-performing engines of growth.

If you haven’t reevaluated your depreciation strategy, now is the time. Because in today’s market, smart tax planning isn’t just about savings, it’s about acceleration.

The passage of the Build Back Better Act (BBBA) brought with it several impactful policy changes, but few have resonated with real estate investors as powerfully as the restoration of 100% bonus depreciation and the expansion of Section 179 expensing. These two tax incentives are not just technical updates, they are game, changing tools that allow property owners to reduce taxable income dramatically, unlock trapped capital, and create momentum for new growth.

In simple terms, bonus depreciation and Section 179 allow for immediate expensing of certain property improvements and tangible personal property. Before these provisions were restored, improvements to real estate typically had to be depreciated over 15, 27.5, or even 39 years. Now, qualifying property can be fully deducted in the same year it’s placed into service, a monumental shift that accelerates tax benefits and transforms investment timelines.

What Qualifies for Full Expensing?

The scope of assets eligible for 100% bonus depreciation and Section 179 expensing is broad. It includes improvements to nonresidential buildings such as:

• Interior renovations and tenant improvements
• Building systems like HVAC, electrical, and plumbing
• Fixtures, furniture, and equipment
• Roofs, security systems, and fire protection

It’s important to note that land and building exteriors typically don’t qualify, but nearly every interior enhancement and operational system can. This is particularly valuable for value, add investors, developers, and owner/users who invest heavily in modernizing or customizing space.

The Strategic Impact on Real Estate Investment

This level of immediate tax relief enables investors to retain more of their capital upfront, which directly enhances liquidity and shortens the ROI timeline. Capital that would have been locked up in depreciation schedules over multiple decades is now available in year one to be reinvested in additional assets, used to pay down debt, or reserved for future opportunities.

For example, if an investor spends $500,000 upgrading a commercial building’s interior and systems, they could potentially deduct the full $500,000 from their taxable income in the same year. Assuming a 35% tax bracket, this results in an immediate $175,000 reduction in taxes owed, funds that can immediately be repurposed for business growth.

What Industry Leaders Are Saying

Jeff Pori, CEO of Kingsbarn Realty Capital, underscored the significance of the policy shift, stating:

“Restoring full expensing and bonus depreciation is a major win for our investors. It means more capital can be reinvested into new projects, debt can be paid down faster, and our clients can realize the benefits of their investments much sooner.”

These restored provisions don’t just make individual projects more profitable, they open the door to a more agile investment strategy overall. Investors can move more quickly, scale more efficiently, and respond to market opportunities with less financial friction.

A Catalyst for Broader Adoption of Tax Strategies

This legislative change has also placed a spotlight on advanced tax planning strategies like cost segregation. As we’ll explore in Part 2, combining 100% bonus depreciation with a cost segregation study can significantly increase the amount of deductions available, especially for renovation, heavy properties or recently acquired commercial real estate.

In a climate where maximizing capital efficiency is key, these tools are not optional, they’re essential.

Final Thoughts

The restoration of 100% bonus depreciation and enhanced Section 179 expensing should not be overlooked. They represent a rare opportunity for real estate investors to optimize their tax positions and scale their portfolios more efficiently than ever before. Johnston Pacific Commercial Real Estate, Inc can assist you in expanding your portfolio. Give us a call at 949-366-2020

In Part 2 of this series, we’ll dive deeper into how these tax provisions can enhance cash flow, and why cost segregation studies have become a critical part of the real estate investor’s toolkit. Check back in September 2025!

Key Drivers Behind the Rate Adjustment

Several factors contribute to the anticipated rate changes:

• Inflation and Rising Operational Costs: Increases in the costs of electricity, chemicals, parts, and equipment have impacted the overall expenses of water and sewer services.
• Imported Water Expenses: The cost of importing water from Northern California and the Colorado River continues to rise, affecting customer rates.
• Infrastructure Investments: SMWD plans to invest significantly in local water projects to enhance self-reliance and reduce dependency on imported water.
• Deferred Maintenance in San Juan Capistrano: After assuming responsibility for San Juan Capistrano’s water system in 2021, SMWD identified the need for substantial infrastructure repairs due to years of deferred maintenance, necessitating increased funding through rate adjustments.

Impact on Customers

While specific rate increases for 2025 have not been finalized, previous adjustments provide context:

• Residential Customers: In past adjustments, residential customers in San Juan Capistrano experienced an average monthly increase of up to $30.
• Commercial Customers: Businesses, particularly those with fire suppression systems, faced significant increases. For instance, The Shea Center reported a proposed 288% hike, raising their annual water bill from $15,000 to $45,000.

SMWD’s Cost-Reduction Efforts

To mitigate the need for rate increases, SMWD has implemented several cost-saving measures:

• Energy Efficiency: Installation of a solar array has reduced energy costs by $400,000.
• Operational Improvements: Enhancements in operations and technology have led to $500,000 in savings.
• Recycled Water Usage: Utilizing recycled water has decreased imported water costs by $4 million.

Pros and Cons of the Rate Adjustment

Pros:

• Infrastructure Modernization: Increased funding allows for essential upgrades to aging water systems, improving reliability and safety.
• Enhanced Self-Reliance: Investments in local water projects reduce dependency on imported water, promoting sustainability.
• Cost Transparency: The cost-of-service study ensures rates are based on actual service costs, aligning with legal requirements.

Cons:

• Financial Strain on Customers: Significant rate increases, especially for commercial entities, may lead to financial challenges.
• Equity Concerns: Disproportionate impacts on certain customers, such as those with fire suppression systems, raise fairness issues.
• Communication Shortcomings: Critics have pointed out a lack of transparency and timely communication regarding rate changes.

 For more information, please watch this video:

Looking Ahead

SMWD plans to finalize the rate adjustments following the completion of the cost-of-service study. Customers will receive detailed notifications, and a public hearing will be held before the new rates take effect in August 2025. The district encourages customers to participate in the process and offers resources for estimating future bills.

For more information and updates, customers can visit the SMWD Rates Page.