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had in Kentucky. Income-generating residential property is depreciated over 27½ years, so the Jones could enjoy
straight-line depreciation ($1,000,000/27.5) of $36,000 a year on the $1 million cost of their houses. That means
they were losing $11,000 a year, $55,000 so far … to keep their jobs.
“Which one of you is going to quit your job?” I asked. They both raised their hands.

Jean and John had a lot of Assets , along with their liabilities. Of their assets, they had $1.2 million that could be
invested, including

$200,000 equity in home
$100,000 equity in lake house
$700,000 equity in their six investment properties
$200,000 in IRAs

They were willing to
Take the $700,000 of equity out of their investment properties by selling the six properties.

The five years of appreciation of the Kentucky properties was not worth the drain on the Joneses’ cash. They
could utilize the tax-deferred strategy of a 1031 like-kind exchange that allows a property owner to sell property and
reinvest proceeds into ownership of like-kind property and defer the capital gains. I recommended two cash flow–
producing commercial properties.

Trading up their assets from one cash-draining asset into two cash flow–producing assets had a few benefits for
John and Jean Jones: (1) It would create deductions in the form of depreciation of $25,000 a year ($700,000/27.5).