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Tax Benefits of Multi-Family Real Estate Investments

“The greater the passive income you can build, the freer you will become.” – Todd M. Fleming 

Once I learned the power of passive income, I knew that this is what I wanted to build to get my time back and multi-family real estate was one of the greatest assets to invest in for it.  Time is our greatest commodity that we have and the sooner we can grow our passive income level to a point where we can be financially free the better.  Taxation will extend the amount of time and affect the volume of your income needed for that to happen if you do not take the best strategy to keep more of what you have earned.

When it comes to taxation, I tend to be the one who is screaming taxation is theft.  However, as Benjamin Franklin is famously quoted as saying, “Nothing is certain except death and taxes.”  I am certain if you do not do your best to mitigate this income-eating monster, you will irrevocably slow down the growth of your assets.

Tax incentives vary from asset class to asset class but I felt like multifamily was the clear front runner! I’m extremely grateful to have found this path and for the lifestyle, it’s afforded my family and the families of our investing partners… which is why I feel obligated to share!


I will try my best to walk you through some of the US tax laws and explain how they work in our favor as real estate investors. I’m not talking about trying to cheat our way out of paying taxes, not at all. I’m talking about HOW to keep more money for you and your family, legally, ethically, and strategically by simply shifting your investment approach.

I’ll explain some of the benefits and also explain how those stack up against the money you would make from a typical stock investment.

If you don’t care about the details and just want to see the comparison, feel free to scroll down to “What does that mean and how does it compare.”


I’m not an accountant.   I’m trying to provide a high level of an overview so you know your options. That being said, you should absolutely hire a real estate-focused CPA if you’re looking to dive into this amazing asset class. They can save you hundreds of thousands of dollars by showing you how to structure your portfolio properly.


Multifamily housing plays a vital role in the housing industry and is viewed as one of the best and most affordable housing options out there. Apartments are the choice of residency for people at all stages of life though, not just those needing affordable housing.

In fact, the demand is so high that there is a constant shortage for these options, which is why tax incentives exist. The government will reward you as an investor, in the form of tax incentives, because you’re assisting in providing these housing options to people across the nation.

Reminder, any tax incentive that you get, translates into added revenues in your pocket. The more money you have in your pocket the quicker you can grow your wealth portfolio by reinvesting your gains and compounding your returns.



Depreciation is an income tax deduction. In short, while real estate values generally appreciate, the physical components don’t. (Roofs, appliances, electrical, etc) The IRS understands and accounts for this by offering an income deduction for owning depreciating assets.

For example, let’s say we buy a commercial property for $10,000,000 and the tax assessor estimates the land value is $3,000,000. The land value doesn’t benefit from depreciation but the physical property value will get depreciated over 27.5 years, resulting in a tax loss of $254,545. ($7,000,000 / 27.5 = $254,545)

An important reminder that depreciation is a “phantom” expense, we’re not actually stroking a check for the $254,545.

This means that regardless of the amount of dollars received from cash flow during the hold period, the annual taxable gain will usually be net negative or very close to it! The result, is positive cash flow each quarter while still claiming a loss at the end of the year.

In basic terms: Make more and keep more! It’s beautiful!!


Multifamily investors also get the added benefit of being able to accelerate that depreciation through a cost segregation study. In short, we can hire an engineer to come analyze all of the components of the property separately and have them create a custom depreciation schedule.

The result is the ability to depreciate up to 90% of the building’s value over 7 years.


The Bad News: When you sell the property for a gain at the end of the hold period there will be a tax based on the long-term capital gains rates, as well as a tax for depreciation recapture.

The Good News: The new tax reform bill allows us to depreciate the entire value of a building in Year 1, this is called “Bonus Depreciation.”

This means is we get to carry our passive losses forward until we sell the property and use those passive losses to offset our capital gains!!


Alright, even if all you’ve done is skip to this section, you’ll see WHY I’m passionate about the topic at hand and HOW it affects our bottom line.


Stock Market

Let’s say you invest $500,000 into the stock market and earn a 10% return of $50,000. That would equate to you paying $10,000 in capital gains taxes, leaving you with $40,000.

That’s a net gain of 8%. 


Let’s say we invest that same $500,000 into a multi-family deal with cash flow returns of 10% instead. Your cash flow earnings that year would equal $50,000, but when you get your K-1 at the end of the year, (the tax document you receive for investments in partnership), it wouldn’t show a gain of $50,000, it would show a loss.

Which means at a minimum your net gain would be 10%

Even though you made $50,000, there would be a tax depreciation of approximately $73,000. This means you would be showing a taxable loss of $23,000…. on a GAIN of $50,000.

Let me break that down for you… 

Stock Market Returns

  • Investment: $500,000
  • Gross Return: 10%
  • Profit: $50,000
  • Taxes: $10,000
  • Net Income: $40,000
  • Net Return: 8%

Multi-Family Returns

  • Investment: $500,000
  • Gross Return: 10%
  • Profit: $50,000
  • Taxes: $0
  • Net Income: $50,000
  • Net Return: 10%

Multifamily With Taxable Loss

  • Investment: $500,000
  • Gross Return: 10%
  • Gross Profit: $50,000
  • Taxable Loss: $23,000
  • Net Income: $68,350
  • Net Return: 13.67%

Taxable Loss Breakdown

Let’s look at an example of what the taxable loss of $23,000 could equate to if the gross income was $515,000. With a taxable loss of $23,000 due to depreciation, the taxable income would be $492,000.

Taxes Paid at An Income of $515,000

(37% Tax Bracket)


Taxes Paid at An Income of $492,000

(35% Tax Bracket)




The tax benefits of multi-family real estate are momentous when building a portfolio where you can retire early with fantastic cash flow.  The less money you have to share with the U.S. Government, the more money you have to enjoy, invest, create generational wealth, and accomplish whatever your individual investment goals are. Once again, I’m grateful for this amazing asset class and the opportunities I have to invest.

Interested In Investing?

We are currently accepting accredited and sophisticated investors who are interested in looking at our upcoming investment opportunities. If you’re considering investing, we’d be honored if you’d consider us as partners.

Yes, your read that correctly you do not have to be an accredited investor you invest in multi-family real estate….

Deven Delap Angel Capital LLC managing partner

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