buy a home, build a DADU, sell both units after DADU complete, tax saving strategy?

[Yu Xiao]

If we purchases a home as an investment property, build a DADU, and sell the home and DADU (around 12 months after the purchase), what's the best strategy for tax saving?
My partner and I are both on the higher end of tax bracket, anything we could do to help reduce the tax bill from these transaction? 

Thanks.

[Bill Hampton]

@Yu Xiao

There are several strategies that you can use to reduce your tax liabilities. A 1031 exchange, an installment sale, and a Delaware Statutory Trust (DST) are just a few. I recommend that you consult with a tax accountant specializing in real estate taxation. There are several of us on this site.

Good luck. 

[Dave Foster]

@Yu Xiao, using that property as a short term rental during the time you own it will open up some additional tax saving potential as will doing a cost segregation study to take advantage of some accelerated depreciation.  

When you sell you will want to do a 1031 exchange.  This will allow you to indefinitely defer the depreciation recapture of the enhanced depreciation and the tax on gain from the sale.  Use the 1031 to go into your next project.  Or like @Bill Hampton said, explore Delaware Statutory Trusts or NNN commercial properties if you want to move into a more passive role.

[Julio Gonzalez]

As Dave mentioned, a cost segregation study combined with a 1031 exchange could be a good route for you. I don't typically recommend a cost segregation study on a short-term hold since you don't get to see as many of the benefits, but if you 1031 exchange the property, it allows you to continue to defer the tax.