What are the tax advantages?
The benefits vary according to your own tax situation, but may include:
- Cash flows may be received without a current tax impact (tax depreciation deductions defer taxation, and depreciation rules are favorable to the investor)
- Distributions from refinancing events provide cash flows with no current tax obligation
- Section 1031 exchanges from other real estate investments into a multifamily housing can defer capital gains taxes and lever up your potential cash flows and returns
- When you sell your real estate investments, a significant portion of the gain may be taxed at favorable capital gains tax rates
- Real estate is an ideal estate planning vehicle. Your heirs’ future tax obligations are reduced due to the step up of basis to fair value at the date of death
- If you qualify as a real estate professional, paper tax losses can reduce current taxation on ordinary income
For more details on these potential benefits see The Tax Advantages of Residential Real Estate Investing. (Remember to consult with your own tax advisor before investing since the articles on this web site do not constitute tax planning advice.)