Tax Laws Are Written For Everyone...But Only If You Know About Them

I had a fantastic vacation last week, but the absolute highlight was when a dear friend called to tell me how much money he is saving on his taxes this year because of an investment that he made in a multifamily syndication.  This is the same friend who months earlier, when he was signing the documents told me, "you know Holly....I'm only doing this because it's you right? I trust you, but this just sounds like it's either illegal or a scam." I simply smiled, because over the last five years I've heard it over and over. My financial advisor even added that he thought I was making a "big mistake" when I moved money out of the stock market and into my first private multifamily syndication.

The pure joy that I experience when people I care about lives begin to change is why I left my 30-year career, and why I choose to spend my days helping people learn what the very rich already know: That the tax code was written for them, that private investments often can dramatically decrease tax liabilities, but you don't have access to them unless you are one of them. I'm determined to educate and open the door into the club, so that my friends and family can keep more of their hard-earned money.

I’m not a tax professional, but here is why tax time gets better for me each year:

• Every syndication I invest in takes place within a single-purpose LLC. That is, an entity that is created within which we are all owners, and we buy an apartment community together.
• We are PASSIVE investors/owners of that apartment community.
• That entity earns income, but it also generates capital expenses, depreciation, etc. that can offset that income.
• Because of the way our tax code is written, even though there are cash distributions, and even though the asset is appreciating and net operating income is rising, the expenses and depreciation that is happening within the LLC almost always results in a tremendous passive loss.
• Because we are passive investors, passive losses always offset passive gains.

What that means to me as an investor, is that instead of making $8,000 on a $100,000 investment, my tax document that I file, (issued by the LLC entity called a K-1), shows that I LOST way more than $8,000. Therefore, I have $8,000 in my pocket that I don’t pay taxes on. PLUS, my $100,000 investment continues to grow. When the asset is sold, I may have to "recapture" those taxes, but there are often other ways to continue to defer them. 

Contrast that with the stock market where I have to SELL THE ASSET to make any money at all, and then PAY CAPITAL GAINS immediately on the profits. Couple that with the minimal risk inherent in a class B multifamily apartment community vs the risk in the market, and you can quickly understand how my life has changed.