How Savvy Investors Lower Their Taxable Income Despite Increasing Their Actual Income



Want to pay fewer taxes?

Not only that, but want to learn how you can pay fewer income taxes while also making more money every year? 

It’s no secret that elite investors know how to work their investments to protect their income from taxation (just like protecting your income from INFLATION). 

Here’s one of the least understood benefits of investing in one of our multifamily opportunities passively. 

When you invest in multifamily as a limited partner, you’re able to actually claim a loss of income during the year, even though you make money from the investment, here’s how: Depreciation.

DISCLAIMER: Please consult your CPA, figures used here are general rules of thumb, every tax situation is different and you should not take action soley based on the information provided in this article.

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Depreciation in commercial real estate is what we call a “phantom loss”, meaning it’s only a loss in the eyes of the IRS, you aren’t actually losing money. 

As buildings age, there are expenses that accrue over time, such as roofs, carpets, paint, plumbing, and anything else you can think of that is needed to maintain and upkeep the property. 

The IRS will allow you to take these losses over time, as opposed to all at once when it’s time to replace these large expenses. This steady “loss” is known as depreciation. 


Since depreciation is considered a loss in the eyes of the IRS, you’re able to take this loss off of your taxable income, here’s how this would look: 

Let’s say you make $75,000 per year at your W2 job. Now, let’s say you save up $100,000 and invest it passively into one of our properties that produces an 8% cash on cash return. This means in the first year, you’ll make $8,000, bringing your total income to $83,000.


On average, passive investors are able to depreciate 35% of their investment amount the first year, meaning you’ll be able to claim a $35,000 “phantom loss” on your taxes. Taking your taxable income down from $83,000 to $48,000. At the time of this blog post, the federal tax bracket you'd be in is 22%, meaning these tax benefits brought your annual tax bill from $18,260 down to $10,560 - a $7,700 savings.

Now, as the property continues to depreciate, you’ll be able to continue claiming these phantom losses for up to 27.5 years (the maximum amount of time the IRS allows you to depreciate a property). 

This means, if you invest in another property with another $100,000 the year after, you’ll be able to depreciate both properties, driving your taxable income down even further even though the investment is making you money every single year. 


So, are you ready to learn more about an investment strategy that decreases the taxes you pay even while increasing your income? Schedule a quick 15-minute call with us and see if multifamily investments align with your investment goals.

Get More In Depth

In this post, we covered a broad view of the tax benefits that come with multifamily investments. Next step: Let's get in touch with a quick 15-minute call to see if multifamily investments align with your investment goals.



I connect smart investors like you to the very best multifamily investment opportunities available. I'm passionate about educating our investors in this space and helping you make the very best decision with your money.