4 mins
December 22, 2022

FGCP™ Quarterly Considerations: Evaluating Your Investment Strategy in Light of Current Economic Conditions

FGCP™ Quarterly Considerations: Evaluating Your Investment Strategy in Light of Current Economic Conditions

These are the trends we’re paying attention to as we wrap up Q4 and head into 2023.

From geopolitical factors like the war in Ukraine to domestic policy decisions like interest rate hikes and the bonus depreciation phase out, our economic landscape has changed dramatically since the start of 2022. 

There’s no way to know for sure what 2023 will hold. But the wisest investors are those who are able to make a plan based on current information and remain willing to adapt as new information becomes available.

In particular, here are a few of the circumstances we’re keeping the closest eye on as we reflect on 2022 and prepare for the start of the new year. 

Inflation Continues to Decline in the Midst of High Interest Rates

Inflation has continued to decline each month ever since it hit a peak of 9.1% in June. In November, the annual inflation rate dropped to 7.1%, the lowest it’s been since December 2021. 

Though this is a significant improvement from earlier in 2021, 7.1% is still a relatively high rate of inflation. In a Dec. 14 statement  the Federal Reserve said its committee members are working to return inflation rates to 2%. In order to do so, they expect they’ll need to continue increasing interest rates throughout 2023, from the current rate of 4.5%. 

So what do these numbers mean for investors? 

With interest at the highest rates we’ve seen since 2008, and inflation continuing to meet the typical rate for real estate returns (7-8%), now is likely not the best time to purchase new, real assets like real estate. We do continue to believe, however, that real estate assets can present a valuable opportunity for long-term appreciation when chosen wisely. 

Bonus Depreciation Phase Out Set to Begin

Bonus depreciation has provided a significant incentive to invest in eligible real assets, including real estate and carbon capture technology. Since September 2017, bonus depreciation has allowed investors to claim 100% deductions on eligible assets in the first year, rather than claiming depreciation over a longer period of time.

Starting Jan. 1, this incentive will begin to gradually phase out. For assets acquired and placed in service in 2023, you’ll be able to claim an 80% deduction, then 60% in 2024, and so on until 2027, when it will expire completely. 

Bonus depreciation is especially advantageous when applied to carbon capture technology. Because of government efforts to incentivize oil and gas investing, any amount you invest in carbon capture technology is deductible against your earned, W-2 income. This is a significant change from most passive real estate investments, where depreciation only impacts the income you generate through the investment, and not your earned, W-2 income. 

If you want to see the highest possible tax savings from bonus depreciation, you’ll likely want to invest in 2023, rather than waiting another year. To learn more about investing in carbon capture technology and see some specific examples of how much money you can save on taxes, we encourage you to check out this free guide.

Make Plans Today for Next Year’s Taxes

Most people don’t put too much thought into their tax strategy until the last minute — after all, you may not have even started filing your 2022 taxes. But keep in mind that every investment decision you make from Jan. 1 to Dec. 31 can impact the taxes you’ll pay once 2023 ends. 

This is especially important for Accredited Investors, who are typically taxed at some of the highest rates. For these individuals, tax efficient investing is a key differentiator for building wealth more efficiently and holding on to more of your earned income at the end of each year. 

Before investing in something new, make sure you understand the specific tax rules and advantages that will affect that investment. And remember, investing in real assets like real estate may help you generate passive income that’s taxed at a lower rate, but in most cases it will not decrease the 32%+ income tax you’ll have to pay on your earned, W-2 income. 

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You should also take time to consider the specific goals you hope your investments will help you achieve. Once you’ve clearly defined your goals, it’s much easier to select the investment vehicles that can help you reach those goals most efficiently. 

And if you’d like to learn more about how FGCPTM is helping Accredited Investors like you reduce their tax burden and build the life they’ve always dreamed of, we’d love to connect with you. Simply fill out this brief form to get in touch. 

December 22, 2022
Billy Keels