Land & Tax Strategies, October 2026, Vol. 1 No. 01
From the editor
Does a 1031 exchange defer depreciation recapture? Not always, and this month’s Case to Watch shows why. Most of the real estate tax problems I see did not start as tax problems. They started as ordinary transactions that went fine. The property sold, the parties were happy, everyone moved on, and then a deadline ran out quietly in the background while nobody was watching it.
That is the gap this letter is written into. Agents and brokers are the first professionals to touch a transaction and usually the last ones anybody thinks to ask about the tax consequences. Attorneys get called when something is already wrong. Owners often do not know a clock started until it has stopped. By the time the return gets prepared, the choices that mattered were made months earlier.
So this first issue starts where the most money gets lost: the identification list in an exchange. Not the search for a replacement property, not the negotiation, but the piece of paper naming what the taxpayer intends to buy. It gets treated as an administrative step and it is actually the whole deal.
If something here lands close to a file you are working on, say so. Next month we take up year end income planning, which is a conversation that still works in November and barely works at all by late December.
Steve Medendorp, Esq.
Quick hits
- Naming two replacement properties feels like caution and functions like a coin flip.
- The Opportunity Zone map that has governed since 2018 is being replaced, and the switch happens January 1.
- Data centers are repricing land that nobody wanted five years ago, for reasons that have nothing to do with the land.
- When a deduction is a multiple of the cash invested, that is not planning.
This month
The identification list is the whole deal. Around day thirty, the owner has found the property they want, adds a second as a precaution, and submits the list. Then the first deal dies, and everything rests on a property they already rejected. By then day forty five has passed and the list is frozen. A third name that can actually close, chosen deliberately in the first two weeks, is what turns the list into a plan. For some owners it is also the thing they wanted in the first place. Why two properties is not a backup plan
The new Opportunity Zone map is decided, and nobody can see it yet. States finished choosing on September 28. Treasury confirms those choices somewhere between late October and the end of December, and the new list takes effect January 1 and runs through 2036. Eligibility was tightened and each state could choose only a quarter of the tracts that qualified, so a substantial share of today’s zones will not appear on the new list. Until the announcement, zone status is provisional for anything closing in 2027. What the new Opportunity Zone map changes
Why everyone suddenly wants land near a substation. The data center bid prices access to power, not acreage. Proximity to transmission capacity and a utility willing to commit to a timeline are what is actually being bought, which is why parcels that looked ordinary a few years ago are drawing offers well above local comparables. For an owner, the offer usually arrives before the tax planning does, and the sequence matters more than the number. What the data center bid is actually buying
When the deduction is bigger than the check. There is a family of arrangements marketed to property owners where the promised write off is a multiple of the money invested. The most familiar version is the syndicated conservation easement, and the litigation record is not close. The test is simple enough to apply in the room: ask what the position returns if the deduction is disallowed. How to spot an arrangement built on the deduction
Case to watch
Gerhardt v. Commissioner, 160 T.C. No. 9, decided April 20, 2023. A family exchanged rental farm property, including hog buildings and equipment, for replacement real estate and deferred the gain. The IRS did not dispute that the exchange qualified. It assessed tax anyway, on the ground that depreciated buildings and equipment carry a recapture rule that overrides the deferral, and the Tax Court agreed. The same consolidated proceeding sustained an accuracy related penalty against other members of the family. For owners of improved or equipment heavy property, the point is that a qualifying exchange is not the same thing as a tax free one, and the split between recapture and non recapture property is worth documenting before closing rather than reconstructing afterward.
Book a free thirty minute call with Steve to talk through your own timeline before the clock starts.
