Multifamily Investors Are Cutting Their Tax Burdens To ZERO

The month of April would normally be known for Tax Day, but as we all are aware, the COVID-19 situation is currently changing the way businesses are operating day to day. With the IRS having extended deadlines for both business and personal filings in the wake of the pandemic, it gives you a little more time for tax planning and strategy.

In these times, it’s even more important to be on top of our finances. And one of the most effective ways in maximizing your money is keeping more of what you earn.

We personally have cut our tax burden to zero in recent years…and we’re not the only ones. Many of our investors and Family Syndication Group members are able to make significant improvements to their situation, like our physician friend Rod:

“As a physician, I thought I was doing great with investments and deductions but was still paying 25% to 28% tax every year. After investing in real estate and working with Think Multifamily, my income tax went from 26% in 2017 to under 13% in 2018. A reduction of 50%. Who has ever heard of a doctor getting a $40,000 tax refund?!” 

Rod Capelo
Rod Capelo
Orthopedic Surgeon

It’s not that we’re doing anything special, but following what the government wants us to do. Regardless of your political affiliation, we utilize or do not utilize the policies put into play by our government. You may have heard the phrase – The tax code is a roadmap…incentivizing activities that boost the economy, create jobs, and make communities better. This is exactly what Multifamily Investing helps YOU do!

So why do so many of the wealthy flock to Multifamily Investing?

One of the biggest advantages of real estate and apartment investing is Depreciation. Rental real estate can be depreciated, and when done properly, can turn a property with positive cash flow into a loss for tax purposes. Depending on your situation, these rental losses can be taken against your other income, resulting in big tax savings.

Real property must be depreciated by tax law:

  • 39 years for Commercial property
  • 27.5 years for Residential property

Cost Segregation is a tax planning technique that can separate and accelerate property into various depreciable categories. Property can then be depreciated over a much shorter time: 5, 7, 15, and 27.5 or 39-year categories.

What does this mean for you?

You can accelerate how much depreciation can be taken sooner rather than later, increasing your Time Value of Money and allowing you to keep more of your money today.

This depreciation benefit can have even more financial benefits for you…if you or your spouse can qualify as a Real Estate Professional.

If you do not qualify as a real estate professional, you are allowed up to $25,000 of passive losses, if your Modified Adjusted Gross Income (MAGI) is $100,000 or less. The allowance phases out at a rate of 1:2 for every dollar over $100,000 and completely phases out at $150,000. So if you make too much money, you cannot take full advantage of all the losses from depreciation. However, they can be carried over to the next year for you to leverage.

As a Real Estate Professional, these limits don’t apply and all real estate losses are deductible against any type of income.

Generally, you qualify as a Real Estate Professional for the year if you OR YOUR SPOUSE meet both of the following requirements:

  • More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.
  • You performed more than 750 hours of services during the tax year in real estate

NOTE… your SPOUSE can meet the requirement if you’re filing jointly. This is an incredible strategy that many married couples like our friends, Josh and Emily Houser are able to take advantage of.

As always, please consult your own tax professional.

We hope you can now see that investing in real estate, like multifamily, has some amazing tax advantages for you.

If you are looking to do a Cost Segregation study for your own apartment investment or have questions on how this works, then Brian Bigham with Madison Specs is your man. Not only are they our preferred vendor on the subject, but incredibly knowledgeable and great folks!

You can reach them at:

Brian Bigham
Cost Segregation Expert
Madison SPECS, LLC a Madison Commercial Real Estate company
(214) 983-0862 – Direct
[email protected]

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About The Author

Mark Kenney

Mark Kenney

Mark Kenney is a seasoned real estate investor, entrepreneur and founder of Think Multifamily. Mark started his real estate career over 25 years ago and has extensive experience in property valuation, acquisition, and operations. He has a passion for helping others succeed in the multifamily arena.

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