By: Dr. Tamara Patzer
In brief: A single property sale can lift a real estate investor above the top 1% income line for a year, and it can trigger surtaxes and special gain rates that surprise owners. This feature explains the federal figures, what personal ownership risks at scale, and what a New Orleans tax attorney says investors should settle before they list.
Real estate investors tend to measure themselves in doors, square feet and cap rates. The tax system measures them once a year, on one return, and a closing can change what that return looks like. New Orleans tax and estate attorney Todd M. Villarrubia, author of Entrepreneurial B.E.A.S.T. Mode™, says that is the moment many investors learn they were in the top tier all along.
What income puts a property investor in the top 1%?
The Tax Foundation’s analysis of IRS data for tax year 2023 puts the entry line for the top 1% at about $676,000 of adjusted gross income1. Rental income alone may never get an investor there. A sale of one or more properties in the same year can.
Villarrubia’s opening chapter makes the general point: “Membership doesn’t require a Gulfstream; it simply requires having built or accumulated significant financial power.” For a property investor, the financial power often shows up on paper first, as equity, and on the return second, in the year the equity turns into cash.
What does a sale add to the tax picture?
Several layers, each with its own rules. Gains on property held more than one year are generally long-term, and long-term gains are taxed at 0, 15 or 20 percent depending on income2. Under the IRS thresholds for 2025, the 20 percent rate starts above $533,400 for a single filer and $600,050 for a couple filing jointly2. The IRS page lists a higher maximum rate of 25 percent for unrecaptured section 1250 gain, which is the part of a gain tied to depreciation taken on real property2. The page gives no 2026 thresholds, so an investor planning a sale should confirm the current year.
On top of that, the Net Investment Income Tax of 3.8 percent can apply once modified adjusted gross income passes $200,000 for single filers or $250,000 for joint filers3. Whether it reaches a particular investor depends on how the income is classified and on the investor’s role, which is a question for a tax professional.
None of this is a reason not to sell. It is a reason to learn the numbers before the contract, when some choices are still open. Once a deal closes, the tax result is largely fixed, and the only remaining question is how well the paperwork was prepared.
Why does titling matter more as the portfolio grows?
Because a claim against one property can reach the others. Villarrubia is direct about it: “Personal ownership is the riskiest structure at scale.” An owner who holds several properties in a personal name has tied them together legally, whether or not they are connected financially.
His principle is easy to remember: “The principle is simple: separate entities for separate risks.” The book’s approach is to group assets by risk, place them in separate entities and keep the entities genuinely separate in operation. State law differs on which entity types are available, and courts can look past entities when owners mix funds or skip formalities, so the paper structure is only the beginning.
He also stresses timing. Protective vehicles do their work only if they are in place first: “These vehicles must be established before claims arise to provide effective protection; they offer no protection against existing liabilities.”
How common are claims against owners?
Common enough that the book treats them as a planning assumption. Villarrubia writes: “Lawsuits are not rare occurrences; they are commonplace.” For a landlord, the source can be a tenant, a contractor, a visitor or a neighbor. Insurance helps and has limits. Entity structure adds a second layer, and an estate plan adds a third.
The book’s own examples are illustrations, not warranties. A well-built structure does not make an owner untouchable, and the book does not claim it does.
What does the estate tax add for a large portfolio?
For 2026 deaths, the IRS puts the federal basic exclusion at $15,000,000 for each person4. A portfolio with significant equity can approach that figure even if the owner does not feel wealthy, since equity is not cash. An estate of mostly real property can face a problem of liquidity. Tax may be due in cash while the assets are buildings.
State rules differ and the federal figure can change, so an investor should have the plan checked against current law on a schedule.
What should an investor settle before listing?
A short list covers most of it:
- Which entity holds each property, and whether the titles match the plan.
- What the expected gain is and how much of it is tied to depreciation.
- Whether the sale falls in a year that already has other large income.
- What the proceeds will be used for, and who will advise on reinvestment.
- Who will manage the portfolio if the owner cannot.
What should a property owner check first?
How each property is held. List the address, the name on title, the lender, the insurer and the entity if there is one. Then ask whether the insurance matches the exposure and whether the ownership matches the plan. Properties accumulate quietly, and a portfolio that made sense when it had two buildings can look different at six. A single page of facts is enough to start the conversation with an attorney and a tax professional.
Common questions
Does every sale push an investor into the top 1%? No1. It depends on the gain and the year’s other income.
Can an investor avoid these taxes? Some choices change the result, and they need a licensed attorney and a tax professional. This article does not recommend any.
Is an entity enough protection? Not alone. Insurance, operations and an estate plan all matter.
Who should an investor call first? Usually a tax professional, since the numbers shape the choices, and a licensed attorney, since the titles and entities shape the risk. They should hear from each other before the contract is signed, and both should see the closing figures before anything is final.
Sources
- Tax Foundation, Who Pays Federal Income Taxes? Tax Year 2023
- Internal Revenue Service, Topic no. 409, Capital Gains and Losses
- Internal Revenue Service, Topic no. 559, Net Investment Income Tax
- Internal Revenue Service, What’s New: Estate and Gift Tax
About the author. Dr. Tamara Patzer is a publisher and former newspaper editor. She was on the staff of The Charlotte Sun when it was named a 2005 Pulitzer Prize finalist for its Hurricane Charley coverage.
About the source. Todd M. Villarrubia is an attorney with an LL.M. in Taxation and a Juris Doctorate. He is an Accredited Estate Planner, a Board Certified Expert in Estate Planning and Administration, and a Fiduciary Investment Advisor Representative. He is the author of Entrepreneurial B.E.A.S.T. Mode™. Wealth Planning Law Group, 101 W. Robert E. Lee Blvd., Ste 404, New Orleans, LA 70124. Phone: 504-982-8207; email: todd@lawealthplan.com; website: https://lawealthplan.com/?utm_source=newsanchored&utm_medium=real-estate-today&utm_campaign=top-1pct
Disclaimer: Sponsored feature written on behalf of Todd M. Villarrubia. This article is general information, not legal or tax advice, and reading it does not create an attorney-client relationship. Results vary.
