For commercial real estate (CRE) owners, protecting wealth and minimizing taxes are essential to building a lasting legacy.
One powerful — yet often overlooked — strategy is placing your property into an irrevocable trust. This approach helps CRE shareholders save on taxes, continue claiming depreciation, and preserve wealth for future generations.
Who Owns the Property in a Trust?
When you transfer property into an irrevocable trust, the trust becomes the legal owner.
It continues to earn income, claim expenses, and deduct depreciation — even though the property is no longer in your personal name. This allows the property to keep generating income and tax benefits, while removing it from your taxable estate.
Why Not a Regular (Revocable) Trust?
A revocable trust, often called a living trust, keeps you in control of your property. However, it offers no tax benefits.
You still own the property for tax purposes, report all income and depreciation on your personal return, and the property remains part of your taxable estate.
An irrevocable trust, on the other hand:
- Removes the property from your taxable estate.
- Shifts income and depreciation to the trust or its beneficiaries.
- Protects the property from creditors and legal claims.
How Depreciation Works in an Irrevocable Trust
When you transfer a property, the trust takes over your adjusted basis and continues the depreciation schedule you started.
For example, if you bought a property for $2 million and already claimed $400,000 in depreciation, the adjusted basis is now $1.6 million. The trust continues depreciating based on that $1.6 million.
This means the depreciation deductions remain available — they are just reported on the trust’s tax return or distributed to beneficiaries.
Can an Irrevocable Trust Claim Accelerated Depreciation?
Yes — irrevocable trusts can take advantage of accelerated depreciation methods, such as bonus depreciation, Section 179 expensing, or cost segregation.
The key is that the property must still be income-producing, and the trust or beneficiaries must have taxable income to use the deductions.
For example, after transferring a building into the trust, the trustee can order a cost segregation study. The trust can then claim the accelerated deductions just like an individual owner would.
This makes irrevocable trusts especially attractive for CRE owners who want to preserve wealth and maximize the tax benefits of their real estate — including advanced strategies.
Grantor vs. Non-Grantor Trusts: The Tax Difference
| Feature | Revocable Trust | Irrevocable (Non-Grantor) Trust |
|---|---|---|
| Who pays tax? | You | The trust or beneficiaries |
| Tax return? | Your 1040 | Trust’s 1041 |
| Estate tax benefits? | ❌ None | ✅ Yes |
| Who claims depreciation? | You | Trust or beneficiaries |
Why CRE Owners Prefer Irrevocable Trusts
For CRE owners, an irrevocable trust delivers several clear advantages:
- Removes the property from your taxable estate — lowering estate taxes.
- Protects assets from creditors and lawsuits.
- Preserves depreciation deductions, including accelerated methods.
- Spreads income and tax burden among beneficiaries.
These benefits make the irrevocable trust an excellent choice for anyone looking to protect their portfolio and secure their family’s future.
If you’re a CRE shareholder looking to preserve wealth, lower taxes, and keep enjoying depreciation — even accelerated strategies — an irrevocable trust is the better choice over a revocable trust.
It’s a smart way to keep growing your portfolio while protecting what you’ve built, both for yourself and the next generation.
Ready to explore how an irrevocable trust fits into your tax strategy? Let’s talk.
