One of the most valuable features of a multifamily investment is how it is taxed. Investors in a syndication receive a Schedule K-1 each year, and depreciation often offsets much or all of the cash distributions they receive.
Depreciation. The IRS lets owners deduct the cost of a residential building over 27.5 years. Because each investor receives a share of that deduction, distributions can be partly or fully sheltered from current tax.
Cost segregation. A cost segregation study breaks a property into its components. Items such as flooring, appliances, cabinetry, parking lots and landscaping can be depreciated over 5, 7 or 15 years instead of 27.5. That moves a large share of the deductions into the first years of ownership.
Bonus depreciation. Under the One Big Beautiful Bill Act, signed in July 2025, 100% bonus depreciation is permanent for qualifying property acquired after January 19, 2025. Shorter-life components identified in a cost segregation study can be deducted in full in the year the property is placed in service. For many investors, this creates a paper loss in the first year.
Passive losses. Losses from a syndication are generally passive. They can offset passive income from other real estate and investments, and unused losses carry forward. Investors who qualify as real estate professionals may be able to use them more broadly.
At sale. Depreciation lowers your cost basis, so part of the gain at sale is taxed as depreciation recapture. Investors still benefit from deferring tax for years and from the lower long-term capital gains rate on the remainder.
This is general information, not tax advice. Talk to your CPA about how these rules apply to you.
This article is for informational purposes only and is not an offer to sell or a solicitation of an offer to buy any security. Past performance is not indicative of future results.