The “Lazy 1031” – A Powerful Tax Strategy That Puts Passive Real Estate Investors in the Driver’s Seat

A few years ago, I sold all of my multifamily properties as well as a few of my single-family turnkey properties.  As I was getting ready to sell, I contacted Nate Busch, my CPA, and asked him how I could avoid the capital gains taxes on these assets.  The market had done very well – and actually saved me from some mismanagement on the multifamily properties – so I had significant capital gains which meant I was looking at significant tax liabilities.  I thought I had two options for avoiding or deferring the tax – a 1031 exchange or an investment into a Qualified Opportunity Zone (QOZ).  Neither seemed attractive to me.

1031 Exchange

The 1031 Exchange is an option that allows active real estate investors to sell a property and subsequently defer the taxes from capital gains and depreciation recapture as long as they buy a “like-kind” property within a certain timeframe that is of equal or greater value.  There are other obstacles in this process, including the need for a “qualified intermediary”, selling the old property, and identifying and buying the replacement property within the IRS guidelines.  It is a complicated process, but the result is that the capital gains and depreciation recapture are effectively transferred to the new property.  You can do this as often as you want, but you usually end up buying larger and larger properties because the ones you are selling generally appreciate in value.  This would not work for me as I did not want to be an active investor anymore.

Qualified Opportunity Zones

The Qualified Opportunity Zone (QOZ) was a new program at the time that allowed you to defer paying taxes on any capital gains, including the sale of paper assets (stock market, mutual funds, etc.) or real assets (real estate, etc.).  If you bought a property in a neighborhood designated as a QOZ, you could defer the capital gains for ten years. A small amount of the original capital gains would be forgiven and any additional gains on the property would be tax-free if you held the investment for at least ten years.  To qualify, the property needed to be in a QOZ and the improvements to the property needed to be equal or greater than the purchase price.  Needless to say, this did not work for me as I did not want an active investment, and since the QOZ law had not been completely finalized, there were no passive investment opportunities at the time.

The Solution

I talked about my reluctance to pursue either the 1031 or the QOZ with Nate, and he had two comments.  First, he said, “Sometimes when you are fortunate enough to have made tremendous gains on an asset, you just have to suck it up and pay the taxes.”  He might have been right about that, but it wasn’t what I wanted to hear.  Next, he said “Or because you are a passive investor in real estate syndications, you could just do a ‘Lazy 1031’ and not pay any taxes on your gains at all”.  I didn’t know what he meant, but I liked the “lazy” part and the “not paying any taxes” part!

He went on to explain the “Lazy 1031”.  As he said, I am a passive investor in real estate syndications, and many of those (especially multifamily apartments) come with significant tax benefits because of bonus depreciation and cost segregation.  In short, bonus depreciation allows you to deduct 100% of the depreciation in the first year of an investment rather than over the entire expected life of the asset.  Cost segregation is where the asset manager hires an engineering firm to analyze the property and to segregate the parts of the property into different depreciation rates which allows more of the depreciation to be able to qualify for bonus depreciation.  The bottom line is that bonus depreciation and cost segregation can give the asset and the investor a much larger paper depreciation loss in year one than they would otherwise have.  This passive loss can be used to offset passive gains from real estate which can come from cash flow or capital gains.  However, when you take all of that depreciation in year one, you will eventually have to “recapture” the depreciation when you sell. Because of this, the strategy works best when you reinvest in new deals and start the cycle all over again.

Bonus Depreciation Example

If I bought a single-family home for $100,000 all cash and sold it several years later for $150,000, I would have a $50,000 capital gain. Assuming that the property was used as a rental and my accountant used straight-line depreciation, I would have some depreciation recapture, but we will ignore that for simplicity in this example.  If I do nothing, I will have to pay tax on the $50,000 gain.  Assuming a 20% capital gains tax rate, I would pay $10,000 in taxes and be left with $140,000, including the original capital of $100,000.  However, if I took the $150,000 and invested it into a multifamily syndication that used bonus depreciation and cost segregation, I would have a paper loss in year 1.  For this example, we will assume the passive loss from bonus depreciation is 50%.  I would have a $75,000 paper loss that would completely offset the $50,000 gain from the property I sold.  I would also have $25,000 of passive loss that would carry over into subsequent years until it is used up.  If I received an 8% cash-on-cash return on this $150,000 investment, I would earn $12,000 per year.  During the first two years of the investment, my cash flow would be tax-free because it would be offset by the $25,000 of carryover losses.  In this example, not only have I deferred the entire capital gain from the sale of my single-family home, I have also deferred paying tax on the cash flow from the first two years. 

Each operator does cost segregation differently.  Some deals have resulted in a 20% loss in year one and others much more – in fact, one of my investments of $50,000 resulted in a paper loss of $60,000 in the first year!

The Golden Hamster Wheel

The beauty of this approach is that it keeps on working as long as you keep investing – similar to the regular 1031 Exchange.  If the asset mentioned above is sold after five years and my $150,000 investment returns to me a total of $300,000, I will have a capital gain of $150,000 and depreciation recapture of $75,000.  If I take the $300,000 and invest it into another syndication in the same calendar year that utilizes cost segregation and gets a bonus depreciation of 50%, I will have a $150,000 loss that completely offsets the gain. I would still have the $75,000 of depreciation recapture and I have two options.  First, I could pay the tax on the recapture – this is paid at a 25% tax rate regardless of your marginal tax rate.  Or I could have been investing in other syndications along the way, and I would have built up additional passive losses that could be used to offset the recapture. Some investors call this the “Golden Hamster Wheel”.

When starting out in passive real estate investing, it is common to build up quite a bit of passive loss that can be carried forward into future investments.  The reason for this is that the gains generally come later.  If you invest $100,000 in two syndications in the first year of your passive investing journey, you might have $50,000 of passive loss and only $8,000 of cash flow.  If you invest $100,000 in each of the next two years in similar deals, you will have an additional $100,000 of passive loss and $16,000 in cash flow.  After three years, you will have $150,000 of passive loss and $24,000 of passive income.  The $24,000 of cash flow is offset by some of your loss, leaving you with $126,000 of passive losses.  These so-called, suspended passive losses can be carried forward indefinitely until it is utilized.  By the time some of your investments go full cycle and sell, you could have significant, unused passive losses that will offset those gains.  This is what makes the strategy so powerful – just by investing in new deals, you continue to accumulate passive losses that can offset cash flow, capital gains and depreciation recapture in the future.  If you continue to reinvest your gains into new syndications, you may continue to defer and reduce your taxes.

One brief note on depreciation recapture – it is often brought up as a hidden tax that we are not contemplating when we discuss the “Lazy 1031” strategy.  But the truth is that much of the accelerated depreciation from bonus depreciation and the cost segregation is for items that have a shorter depreciation schedule.  Because these items depreciate over a short time frame, it is likely that you won’t have to recapture all of the original depreciation.  Once that asset – carpet or paint, for example – has gone past its depreciation date, there will be nothing to recapture.

There are many ways to reduce or defer your tax liability when you invest in a tangible asset like real estate, but most are not as simple as the “Lazy 1031”.  If you don’t want to meet the demands of an actual 1031 Exchange because you can’t meet the timing or you don’t want to continue investing actively, then the “Lazy 1031” might be an effective strategy for you.


The tax implications of real estate investing may be complicated, and everyone’s situation is certainly unique.  I recommend you connect with a tax professional who owns real estate and has experience with many different types of real estate so that they can help you maximize your tax savings.  It is important to find a professional you know, like and trust, and usually, the best way to do that is to find someone recommended by your community like Left Field Investors or by someone you know.


Jim Pfeifer is one of the founders of Left Field Investors.  He is a full time investor living in Dublin, OH.  He has invested in over 60 passive syndications in his quest to become financially free through the acquisition of real assets that produce real cash flow.  You can connect with him at

Nothing on this website should be considered financial advice. Investing involves risks which you assume. It is your duty to do your own due diligence. Read all documents and agreements before signing or investing in anything. It is your duty to consult with your own legal, financial and tax advisors regarding any investment.

Chris Franckhauser

Vice President of Strategy & Growth, Advisory Partner

Chris Franckhauser, Vice President of Strategy & Growth, Advisory Partner for Left Field Investors, has been involved in real estate since 2008. He started with one single-family fix and flip, and he was hooked. He then scaled, completing five more over a brief period. While he enjoyed the journey and the financial tailwinds that came with each completed project, being an active investor with a W2 at the time, became too much to manage with a young and growing family. Seeing this was not easily scalable or sustainable long term, he searched for alternative ideas on where to invest. He explored other passive income streams but kept coming back to his two passions; real estate and time with his family. He discovered syndications after reconnecting with a former colleague and LFI Founder. He joined Left Field Investors in 2023 and has quickly immersed himself into the community and as a key member of our team.  

Chris earned a B.S. from The Ohio State University. After years in healthcare technology and medical devices, from startups to Fortune 15 companies, Chris shifted his efforts to consulting and owning a small apparel business when he is not working with LFI (Left Field Investors) or on his personal passive investments. A few years ago, Chris and his family left the cold life in Ohio for lake life in the Carolinas. Chris lives in Tega Cay, South Carolina with his wife and two kids. In his free time, he enjoys exploring all the things the Carolinas offer, from the beaches to the mountains and everywhere in between, volunteering at the school, coaching his kids’ sports teams and cheering on the Buckeyes from afar.  

Chris knows investing is a team sport. Being a strategic thinker and analytical by nature, the ability to collaborate with like-minded individuals in the Left Field Community and other communities is invaluable.  

Jim Pfeifer

President, Chief Executive Officer, Founder

Jim Pfeifer is one of the founders of Left Field Investors and the host of the Passive Investing from Left Field podcast. Left Field Investors is a group dedicated to educating and assisting like-minded investors negotiate the nuances of the passive investing landscape and world of syndications. Jim is a former financial advisor who became frustrated with the one-path-fits-all approach of the standard financial services industry. Jim now concentrates on investing in real assets that produce cash flow and is committed to sharing his knowledge with others who are interested in learning a different way to grow wealth.

Jim not only advises and helps people get started in passive real estate syndications, he also invests alongside them in small groups to allow for diversification among multiple investments and syndication sponsors. Jim believes the most important factor in a successful syndication is finding a sponsor that he knows, likes and trusts.

He has invested in over 100 passive syndications including apartments, mobile homes, self-storage, private lending and notes, ATM’s, commercial and industrial triple net leases, assisted living facilities and international coffee farms and cacao producers. Jim is constantly looking for new investment ideas that match his philosophy of real assets producing cash flow as well as looking for new sponsors with whom he can build quality, long-term relationships. Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Chad Ackerman

Chief Operating Officer, Founder

Chad is the Founder & Chief Operating Officer of Left Field Investors and the host of the LFI Spotlight podcast. Chad was in banking most of his career with a focus on data analytics, but in March of 2023 he left his W2 to become LFI’s second full time employee.

Chad always had a passion for real estate, so his analytics skills translated well into the deal analyzer side of the business. Through his training, education and networking Chad was able to align his passive investing to compliment his involvement with LFI while allowing him to grow his wealth and take steps towards financial freedom. He has appreciated the help he’s received from others along his journey which is why he is excited to host the LFI Spotlight podcast and share the experience of other investors and industry experts to assist those that are looking for education for their own journey.

Chad has a Bachelor’s Degree in Business with a Minor in Real Estate from the University of Cincinnati. He is working to educate his two teenagers in the passive investing world. In his spare time he likes to golf, kayak, and check out the local brewery scene.

Ryan Steig

Chief Financial Officer, Founder

Ryan Stieg started down the path of passive investing like many of us did, after he picked up a little purple book called Rich Dad, Poor Dad. The problem was that he did that in college and didn’t take action to start investing passively until many years later when that itch to invest passively crept back up.

Ryan became an accidental landlord after moving from Phoenix back to Montana in 2007, a rental he kept until 2016 when he started investing more intentionally. Since 2016, Ryan has focused (or should we say lack thereof) on all different kinds of investing, always returning to real estate and business as his mainstay. Ryan has a small portfolio of one-to-three-unit rentals across four different markets in the US. He has also invested in over fifty real estate syndication investments individually or with an investment group or tribe. Working to diversify in multiple asset classes, Ryan invests in multi-family, note funds, NNN industrial, retail, office, self-storage, online businesses, start-ups, and several other asset classes that further cement his self-diagnosis of “shiny object syndrome”.

However, with all of those reaches over the years, Ryan still believes in the long-term success and tenets of passive, cash-flow-focused investing with proven syndicators and shared knowledge in investing.

When he’s not working with LFI or on his personal passive investments, he recently opened a new Club Pilates franchise studio after an insurance career. Outside of that, he can be found with his wife watching whatever sport one of their two boys is involved in during that particular season.

Steve Suh

Chief Content Officer, Founder

Steve Suh, one of the founders of Left Field Investors and its Chief Content Officer, has been involved with real estate and alternative assets since 2005. Like many, he saw his net worth plummet during the two major stock market crashes in the early 2000s. Since then, he vowed to find other ways to invest his money. Reading Rich Dad, Poor Dad gave Steve the impetus to learn about real estate investing. He first became a landlord after purchasing his office condo. He then invested passively as a limited partner in oil and gas drilling syndications but quickly learned the importance of scrutinizing sponsors when he stopped getting returns after only a few months. Steve came back to real estate by buying a few small residential rentals. Seeing that this was not easily scalable, he searched for alternative ideas. After listening to hundreds of podcasts and attending numerous real estate investing meetings, he determined that passively investing in real estate syndications was the best avenue to get great, risk-adjusted returns. He has invested in dozens of syndications involving apartment buildings, self-storage facilities, resort properties, ATMs, Bitcoin mining funds, car washes, a coffee farm, and even a Broadway show.

When Steve is not vetting commercial real estate syndications in the evenings, he is stomping out eye diseases and improving vision during the day as an ophthalmologist. He enjoys playing in his tennis and pickleball leagues and rooting for his Buckeyes and Steelers football teams. In the past several years, he took up running and has completed three full marathons, including the New York City Marathon. He is always on a quest to find great pizza, BBQ brisket, and bourbon. He enjoys traveling with his wife and their three adult kids. They usually go on a medical mission trip once a year to southern Mexico to provide eye surgeries and glasses to the residents. Steve has enjoyed being a part of Left Field Investors to help others learn about the merits of passive, real asset investments.

Sean Donnelly

Chief Culture Officer, Founder

Sean holds a W2 job in the finance sector and began his real estate investing journey shortly after earning his MBA. Unfortunately, it could not have begun at a worse time … anyone remember 2007 … but even the recession provided worthy lessons. Sean stayed in the game continuing to find his place, progressing from flipping to owning single and multi-family rentals to now funding opportunities through syndications. While Sean is still heavily invested in the equities market and holds a small portfolio of rentals, he strongly believes passive investing is the best way to offset the cyclical nature of traditional investment vehicles as well as avoid the headaches of direct property ownership. Through consistent cash flow, long term yield and available tax benefits, the diversification offered with passive investing brings a welcomed balance to an otherwise turbulent investing scheme. What Sean likes most about the syndication space is that the investment opportunities are not “one size fits all” and the community of investors genuinely want to help.

He earned a B.S. in Finance from Iowa State University in 1995 and a MBA from Otterbein University in 2007. Sean has lived in eight states but has called Ohio home for the last 20+.  When not attending his children’s various school/sporting events, Sean can be found running, golfing, shooting or fly-fishing.

Patrick Wills

Chief Information Officer, Advisory Partner

An active real estate investor since 2017, Patrick Wills’ investing journey began like many others – after reading the “purple book” by Robert Kiyosaki. Patrick started with single family rentals, and while they performed well, he quickly realized their inability to scale efficiently while remaining passive. He discovered syndications via podcasts and local meetups and never looked back. He joined Left Field Investors in 2022 as a member and has quickly become an integral part of the team as Vice President of Technology.

An I.T. Systems Engineer by trade, he experienced the limitations of traditional Wall Street investing firsthand in his career and knew there had to be a better way to truly have financial freedom.

Unfortunately, that better way is inaccessible to those who need it most. His mission is to make alternative investments accessible to everyone who seeks to take control of their financial future and to pursue their passions in life.

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