Passive investor tax benefits

[Yishai Cohen]

I am well aware of most of the tax benefits for an active REI or as the sponsor of a syndication, but are the tax benefits the same or different for a passive investor “member” of a syndication? I am about to run a syndication on a MF building and want to know what tax benefits the members on the deal can expect. Thank you

[Yonah Weiss]

@David VanWert My pleasure. So some basics for the sake of the forum:

Residential/multifamily properties 'depreciate' over 27.5 years and commercial properties over 39 years.

Depreciation is a deduction on your income tax. How do you determine your yearly deduction? Take the purchase price (minus land value ~15-25%) and divide that by 27.5 or 39 respectively.

But there's something called accelerated depreciation, which allows you, with the help of a qualified engineer who is well versed in the tax code, to identify asset that depreciate over a faster life.

Assets in the property that depreciate over 5-years include appliances, furniture, carpeting, special purpose lighting, mill-work, and much more.  

While land improvements like landscaping, pavement, fencing, signage, etc. depreciate over 15 years.

Enter Bonus Depreciation

If you bought a property anytime after 9/28/17 you are eligible to take 100% or 50% bonus depreciation in the first year of ownership, of any assets that depreciate in less than 20 years (like 5 and 15).

You no longer have to wait 27.5 or 39 years!

Not even 5 or 15 years, like you would normally accelerate depreciation!

All of it in the 1st year? It sounds too good to be true.

This is an awesome way to lower your income tax liability.

Example: You purchase a security system for $50,000, or pave a new parking lot for $50,000. Instead of depreciating those assets as part of the building over 39 years, you could accelerate the depreciation with regular cost segregation over 5, or 15 years.

With BONUS depreciation, you can claim the whole value of the asset in year ONE!

Hope that was helpful.