The Wealth Elevator Syndication eCourse

Tax law update (2026): the 2025 tax law restored a permanent 100% first-year (“bonus”) depreciation deduction for qualified property acquired after January 19, 2025. See the IRS notice on the additional first-year depreciation deduction. How much of a K-1 loss you can use depends on your other passive income and your situation, so check with your CPA.

Tax Advantages of Multifamily Real Estate

NOTE: I am not a CPA, tax attorney, or tax professional, so do not rely on me for tax, accounting, or legal advice. Please consult a licensed professional before making complex tax decisions. 

There are 5 main benefits of multifamily real estate syndication:

• Depreciation
• Cost-Segregations
• Passive Income Tax Treatment
• 1031 Like-Kind Exchanges
• Death

Depreciation

Depreciation is one of the larger tax benefits available in multifamily real estate investing. Capital spending and maintenance usually come from after-tax dollars, which some real estate investors may be reluctant to spend. The government offsets this by letting investors take a deduction against their current income of 1/27.5 (3.6% of the building’s value at purchase) each year.

Although buildings have practically a limitless useful life, the government is giving a tax advantage in allowing you to treat the property as if it will become obsolete in 27.5 years. Regardless of the age of the property, the depreciation clock resets every time the property is sold.

Example: If you purchased a multifamily property for $1,000,000 and the land is worth $100,000, you can take 1/27.5 of $900,000 or $32,727 from their current income each and every year. 

Cost Segregation

While the multifamily property may depreciate in 27.5 years, the government considers the useful life of items on the investment property (appliances, fixtures, etc.) to be 7 years or less. Which is why having a cost segregation study on multifamily investment properties with a value over $1,000,000 is worth undertaking to separate these items from the building to get even more tax savings and reduce taxable income.

Check out my article on cost segregation.

Passive Income Tax Treatment

Unless you’re a “real estate professional,” your income generated from multifamily real estate will be considered passive income, which are at lower tax rate than income taxes. Appreciation will be taxed at the capital gains tax rate, which are still lower than income tax rates.

Insider Tip from Lane

Syndications provide significant tax savings and kick off Passive Losses that allows you to pay less taxes,, through tax deduction especially if you can combo Real Estate Professional status to lower your ordinary income tax.

This is where you get on the Simple Passive Cashflow Gravy Train. Invest more, pay less taxes, and more to invest…
It’s a great thing.

1031 Like-Kind Exchanges

The 1031 exchange on a real estate investment is one of the most well known tax strategy. The depreciation deduction previously mentioned is subject to “recapture” when the investment property is sold. So when the property is sold, the gain on the sale is increased by the amount of depreciation deductions that were taken. 

1031 exchanges require a real estate investor to have proper tax planning, the government will allow you to defer those taxes. Your basis in the multi family property is subtracted from the gain on the sale. Your basis is the purchase price minus the accumulated depreciation taken over the investment.

Example: After 5 years, you sell that $1,000,000 rental property for $1,500,00,0 and you took $32,727 in depreciation every year ($163,635 total after 5 years).

Basis: $1,000,000 – $163,635 = $836,365

Taxable Gain: $1,500,000 – $836,365 = $663,635 

You are permitted to repeat this process as many times as you want until you die.

Insider Tip from Lane

1031s are obsolete with current bonus depreciation laws. It is a good tool for a very rare occasion since it requires additional tax planning.
The trouble is, all these 1031 sales guys are always trying to sell it to the average real estate investor.

Death

Your death is a tax benefit, because your tax liability from taxable gains is erased when you pass away. The government assigns a new tax basis to the properties when they are transferred to your heirs.

However, there is a caveat. The capital gains will still be taxed unless investors in a syndicated deal keep their funds in the LLC (the actual owner of the real estate and the only party eligible to do a 1031 exchange). Investors must understand that there are tax advantages during the life of the investment; however, they may not be able to defer taxes on the capital gains after the property is sold via a 1031 exchange. 

Deferred Sales Trust (DST)

DSTs are known as “seller carry-back” and a type of IRC Section 453 installment. They offer a flexible tax deferral alternative to 1031 exchanges. It’s a complicated strategy that requires a qualified trustee to operate. In short, you, as the property owner, will transfer the asset to a dedicated trust.

When the property is sold, the trust will “sell” the asset to a buyer and act as a note holder. The buyer will make agreed-upon payments (called an installment sales contract). The only capital gain that will be recognized will be the portion of the overall capital gains due from the taxpayer’s sale to the trust (based on the terms of the installment sales contract).