Tax Benefits You Need To Know About

[Jorge Abreu]

When a passive investor invests in a value-add apartment syndication, they will generally receive a profit from annual cash flow and the profit at sale. Being a profit, this money is taxable.

However, for apartment syndications, there are five pieces of tax information that the syndicator and the passive investor need to understand in order to determine the tax advantages of investing.

• Depreciation Benefits

Passive investors won’t pay taxes on their monthly, quarterly, or annual distributions during the hold period. They will, however, have to pay taxes on the sales proceeds.

• Accelerated Depreciation via Cost Segregation

The primary goal of a cost segregation study is to identify all property-related costs that can be depreciated over 5, 7, and 15 years.

• Depreciation Recapture

Depreciation recapture is the gain received from the sale of depreciable capital property that must be reported as income. Depreciation recapture is assessed when the sale price of an asset exceeds the tax basis or adjusted cost basis.

• Bonus Depreciation

One of the major changes with the Tax Cuts and Jobs Act of 2017 was the bonus depreciation provision, where business can take 100% bonus depreciation on a qualified property purchased after September 27th, 2017. However, 2022 is the last year to take 100% depreciation.

• Capital Gains Tax at Sale

When the asset is sold and the partnership is terminated, initial equity and profits are distributed to the passive investors. The IRS classifies the profit portion as long-term capital gain.