Top 5 Tax Benefits of Multi-Family Investing

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There are more benefits to dealing in multifamily real estate than just rental income and property value growth. The many tax breaks can potentially be a game-changer, especially for people who invest through syndications.

Here is an interesting look at five tax breaks and how they can potentially help your multifamily investment.

1. Depreciation: The Gift That Keeps on Giving

We believe one great benefit is depreciation. The IRS lets you deduct the building (not the land) over 27.5 years, even if the value of your home goes up over that time. This non-cash deduction can lower your taxed income by a large amount.

Imagine being a part of a syndicate that owns a $2.75 million multifamily building. By putting away about $100,000 a year, you can greatly lower your tax bill and keep more of your hard-earned money while Uncle Sam looks the other way.

2. Interest Deductions: Cheers to Leveraging Debt!

You can deduct the interest you pay on loans you take out to buy or fix up a multifamily home. This deduction is big because most investors use loans to pay for purchases. Like having a glass of wine after a long day, the more you borrow (smartly, of course), the more you can discount. These benefits are passed on to investors through syndications.

This means that you can potentially make more money without having to deal with the debt yourself.

3. Cost Segregation Studies: Accelerate Your Deductions

Cost division is like a cheat code when it comes to tax strategies. You can speed up your depreciation payments by dividing property parts into shorter depreciation schedules (5, 7, or 15 years). This means you'll save more on taxes up front, which you can then put back into other projects.

Syndications often use cost segregation studies, which means owners can get these faster deductions without having to do anything.

4. 1031 Exchanges: Swap Till You Drop

If you use the money from a 1031 swap to buy a "like-kind" property, you can put off paying capital gains taxes when you sell a property. With this deferral technique, investors can trade properties and possibly make their portfolios bigger and more valuable without having to pay taxes right away.

You can get these benefits without having to deal with the complicated details if you invest in a syndication that takes part in 1031 exchanges.

5. Qualified Business Income (QBI) Deduction: A Little Extra Slice of Pie

Because of the Tax Cuts and Jobs Act of 2017, real estate buyers who qualify can get a 20% tax break on their qualified business income (QBI). This reduction lowers your taxable income right away. The QBI deduction can also help investors in syndication, which makes their purchases even more tax-efficient.

Conclusion: Be smart and get what you deserve

Investing in duplex real estate can potentially be very profitable because of the tax breaks that come with it. There are many ways to lower your tax bill and increase your returns, such as depreciation and interest deductions, 1031 exchanges, and the QBI credit.

To be successful, you need a plan, information, and the help of a skilled tax advisor. You can potentially get these tax breaks by investing through syndications, which are easier to handle than managing properties directly. This information is not intended to constitute tax advice. Please consult with your tax advisor before making any investment decisions.