There’s a reason why so many millionaires invest in real estate. Not only can you grow your money consistently and steadily, but you can keep more of it. There are so many good reasons to start investing in real estate, but the tax advantages are one of the best and cannot be ignored, especially when comparing real estate to the other investment options that are out there for you.

Your CPA or tax advisor is ultimately the one who should guide you through the rough waters of the tax code, and if you don’t have a CPA or your CPA does not understand the tax code in relation to real estate, I highly suggest finding one that does understand.  The extra money you may pay to hire one will more than pay for itself when you become a real estate investor.

Let’s quickly go through the top tax benefits of investing in a real estate syndication.

 

Depreciation & Cost Segregation (Bonus/Accelerated Depreciation)

The basic idea behind depreciation is that everything ages over time and eventually reaches the end of its useful lifespan.  The IRS allows us to depreciate the apartment complexes we buy, including all of the things and parts inside of them, minus the value of the land. They are basically acknowledging that our complex is losing value due to wear-and-tear, so they allow us to claim that loss as a deduction on our taxes.  We used to have to spread that loss out over 27.5 years, which was considered the useful life of a residential building.  However, the Tax Cuts and Jobs Act of 2017 made it so we can potentially claim 100% of the depreciation as a deduction in year 1 of ownership!

What does this mean for you as the investor? Not only will you show a paper loss on your money, but could potentially show a loss of 50%, 75%, or even 100% of your investment capital in year one.

 Hypothetical Example: You liquidate some stocks and with that money invest $100,000 into a real estate syndication. We do a cost segregation study and you get a K-1 statement at the end of that year that shows a loss of $100,000, even though you had income that year from cash flow distributions. You can use this paper loss to offset your cash flow income and/or your gains from the sale of your stocks, potentially avoiding paying taxes on both! If you can’t use all of these losses in year one, that’s OK. They carry forward indefinitely on your tax return until you have an opportunity to use them up.

 

Other Common Tax Deductions

• Property Tax
• Operating Expenses
• Repairs
• Mortgage Interest

As an equity investor and limited partner in the partnership, your investment capital will be considered “passive” and each investor gets to share in these deductions based on their proportional ownership.

 

Capital Gains

Down the road when the timing is right and we decide to sell the property, you get your initial investment money back tax-free, and the remaining profits are split according to your ownership percentage and the pre-determined structured profit split. However, these profits are considered “long-term capital gains”, which could be much less than what you normally pay within your ordinary income tax bracket.

 

Self-Directed IRAs, Solo 401ks, QRPs

The tax advantages of these retirement accounts are something you probably already know about because that is their purpose. However, did you know that you can not only diversify but potentially get superior returns by having your retirement account invest in a real estate syndication? There are rules and nuances that you should be aware of, but a growing number of people are starting to become aware of this strategy of combining their tax-advantaged retirement account with the power of real estate investing.

We are not tax advisors, so these are only brief summaries of the tax advantages associated with investing in a syndication. We are NOT giving recommendations or advice. Please consult with your tax professional regarding your specific tax situation and how these things will apply to your situation.

 

Ready To Learn More?

The best way for you to learn more about real estate syndications, as well as our current, previous, and upcoming deals, is to join the Sterling Rhino Capital Investor Club.

Through the Sterling Rhino Capital Investor Club, you’ll get first looks at all the deals we offer. We’ll work with you to figure out your investing goals and to help you find the best deals to meet those goals. We’ll then walk with you every step of the way as you invest in those deals.

So if you’re ready to be done with the headaches of being a landlord, sign up for the Sterling Rhino Capital Investor Club, and get started on your path toward becoming a passive real estate investor.