Multifamily investing is on the rise. In fact, renting as a whole has been rising since 2008. A lot of people are renting apartments or homes while trying to save money for a down payment on a house.
For an investor, this is an opportunity to make high returns while also eliminating your taxes in the process.
Multifamily Investing: Eliminating Your Taxes
A lot of your expenses from owning a multifamily residence can be deducted to help you alleviate a lot of your tax burden. In fact, the right tax professional can help you eliminate most, if not all, of your taxes.
Through a variety of tax strategies:
Deprecation is one of the best tax strategies, and it got better in 2018 thanks to a new tax act. The bonus depreciation was raised from 50% to 100% to allow you to depreciate improvements on your property.
These expenses include:
- Parking lots
- Other improvements
If you plan on improving or rehabbing an investment property, you’ll be able to depreciate these costs even further. You can also choose to depreciate your property over a 27.5 period. Let’s assume that the property was worth $1 million, you can deduct $36,000 a year in depreciation to lower your tax burden.
Accelerated depreciation can also be used to rapidly depreciate a property over a five-to-seven-year period.
Operating expenses are going to be a small portion of your deductions for most years, but they should also be deducted as necessary and properly. You shouldn’t be deducting these expenses as capital expenditures like many people do.
Capital expenditures need to be depreciated over a five- to 15-year period.
You should also be deducting all of your other expenses, which include the following:
- Property taxes
Be sure to keep all of your receipts and to deduct all of the expenses that you possibly can. Of course, if you hire a property manager that maintains your properties or collect your rent for you, this too can be deducted.
It’s important to talk to an accountant to better understand what expenses you may not be writing off to save money.
Create a Beneficial Entity to Reduce Taxes
A business lawyer or accountant will help you create a business to help reduce your taxes. An LLC is one of the most common and provides you with legal protection, too. Instead of taking all of your earnings and claiming it in your personal income tax, you can lower your tax burden by having an LLC that has a tax rate of just 21%.
You’ll also benefit from being able to keep your personal and business expenses separate, making it easier to deduct all of your expenses.
If you’re investing in apartment real estate, duplexes or other multifamily homes, you can achieve high returns while also leveraging your investment to lower your tax burden. A savvy accountant can help you, at least in some years, reduce your tax burden by as much as 100%.
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