What are the tax benefits of investing in real estate syndications?

One key advantage of investing in real estate syndications is the tax benefit opportunities. In this blog, we will explain what bonus depreciation is, how it is applied, and why that is beneficial to you. Your situation is unique to you, however, so please consult with an accountant to find out how/if this applies to your situation. 
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‍What is depreciation? 

‍Multifamily real estate is considered to be depreciated at 27.5 years. Investors benefit from this by writing off the annual depreciation, which can ultimately offset the net operating income generated.

For example, take an investment with a purchase price of $10,000,000. Divide this purchase price by the 27.5 years it takes for the property to depreciate and we come up with $363,636 that can potentially be written off per year. In this case, if the operating income was $360,000 for the year, you would essentially be able to keep the full amount tax-free because you had a loss of more than you made when depreciation was taken into account.

‍How does the cost segregation study benefit investors?  

‍Taking that one step further, utilizing a cost segregation study allows us to depreciate the property at different rates. As you are likely aware, certain features of real estate depreciate quicker than others, such as carpet versus roofing. A cost segregation expert looks over a property, itemizing all materials and the rate at which they depreciate individually. This is considered accelerated depreciation, or bonus depreciation.
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Consider the scenario above with a $100,000 investment in a real estate syndication. Suppose the cost segregation study determines that year one would have a bonus depreciation of 60%. That means the potential loss for year one would be $60,000. Based on a 35% blended tax rate, $21,000 in taxes would potentially be saved in year one. Therefore, if you subtract the $21,000 that you save in taxes from your initial investment, this $100,000 investment really only costs you $79,000. Again, please speak with your tax professional about your specific situation to be sure these numbers would be accurate for you.

‍Why should this matter to you?

 Taking advantage of these opportunities is one of the many reasons so many people choose to put their wealth into real estate investments and real estate syndications. By finding these deals with great returns and taking care of the cost segregation study for you, we provide you with the tools necessary to work with your accounting professional to maximize your tax strategy to your benefit and build smart wealth. 

Want to learn more about a different way to invest in real estate? Download our FREE Passive Investor's Guide to Multifamily Syndications and begin your path to financial freedom!