For commercial real estate (CRE) owners, protecting your wealth and minimizing taxes are key to building a lasting legacy.
One powerful — yet often overlooked — strategy is placing your real estate into an irrevocable trust.
In this post, we explain how an irrevocable trust helps CRE shareholders save on taxes, continue claiming depreciation (including accelerated methods), 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.
The trust continues to earn income, claim expenses, and deduct depreciation — even though the property is no longer in your personal name.
Why Not a Regular (Revocable) Trust?
A revocable trust (often called a living trust) keeps you in control — but 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 in your taxable estate.
An irrevocable trust, on the other hand:
✅ Removes property from your taxable estate.
✅ Shifts income and depreciation to the trust or beneficiaries.
✅ Protects the property from future creditors or claims.
How Depreciation Works in an Irrevocable Trust
The trust takes over your adjusted basis in the property and continues the depreciation schedule you started.
For example:
- You bought a property for $2 million.
- You’ve already claimed $400,000 in depreciation.
- Adjusted basis is now $1.6 million.
- The trust continues depreciating based on the $1.6 million basis.
The depreciation deductions remain alive — just reported on the trust’s tax return (or distributed to beneficiaries).
Can an Irrevocable Trust Claim Accelerated Depreciation?
Yes — irrevocable trusts can also take advantage of accelerated depreciation methods, such as bonus depreciation, Section 179 expensing, or cost segregation, as long as:
✅ The property is income-producing.
✅ The trust (or its beneficiaries) has taxable income to offset.
For example:
- After transferring a building into a trust, the trustee orders a cost segregation study.
- The trust then claims accelerated deductions just like an individual owner could.
This makes irrevocable trusts especially powerful for CRE owners looking to preserve wealth while continuing to enjoy the full tax benefits of their real estate investments — even 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 clear advantages:
- Removes property from taxable estate — lowering estate taxes.
- Protects assets from creditors and lawsuits.
- Continues valuable depreciation deductions, including accelerated methods.
- Spreads income and tax burden among beneficiaries.
If you’re a CRE shareholder looking to preserve your wealth, lower taxes, and still enjoy the benefits of both regular and accelerated depreciation, 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 — for yourself and the next generation.
Ready to explore how an irrevocable trust fits into your tax strategy? Let’s talk.
