Paying taxes takes a significant bite out of earnings for most people. Capital gains taxes on property sales can reach 20%, making tax planning essential for real estate investors.
Tax Benefits for Multifamily Investors
Informed investors leverage Internal Revenue Code provisions to minimize tax obligations substantially.
Property Depreciation Residential properties have a 27.5-year useful life. The IRS permits owners to claim annual depreciation by dividing property value by 27.5.
Cost Segregation Analysis Engineering firms can inspect investment properties and categorize building components into 5, 7, or 15-year depreciation schedules, maximizing deductions.
Bonus Depreciation Since 2001, business property owners may deduct a percentage of acquisition costs. The Tax Cuts and Jobs Act raised this to 100% for qualified properties purchased after September 27, 2017.
Operating Expenses Write-offs include mortgage interest, property insurance, taxes, management fees, maintenance, and utilities—significantly reducing taxable income.
Cash Out Refinance Extracting cash from appreciated properties avoids taxation since loan proceeds aren't considered income.
1031 Exchanges Section 1031 allows property owners to "defer capital gains taxes by exchanging assets for like-kind replacements" with unlimited swap opportunities.
Consulting a CPA helps maximize returns and enable tax-free wealth growth.
Sam Henry
HD Multifamily
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