The Tax Benefits of Duplex and Multi-Family Investing

The world of duplex or multi-family investing is ripe with opportunity. These properties can be valuable assets in your portfolio. They can also generate significant income with multiple tenants on one property. Along with that, multiplex investing also comes with various tax benefits.

Please note: This is not individual advice, but rather a general summary of some of the tax benefits of investing in real estate. You should absolutely consult with your professional tax advisor before assuming these would benefit your specific situation.

Exploring the Tax Benefits

Deducting Loan Interest

Most real estate investors need to borrow to finance properties. That can make loan interest a significant expense. However, mortgage interest is deductible for investment property owners. Beyond that, duplex and multiplex investors can deduct other types of interest. For example, that interest is also deductible if you take a loan to renovate the property.

Depreciation Deductions

You can't deduct the price of a property you buy. However, you can get a tax break for the deprecation of the building. With depreciation, you can deduct the property's value spread across its useful life. For residential property, that is 27.5 years. Beyond depreciation for the property's value, you can also write off other forms of depreciation. For example, if you pay for property upgrades, you can write off depreciation over their useful lives.

Operational Expenses

Multiplex owners have many expenses when it comes to running the property. Fortunately, you can write off all operational expenses. You must market the property to renters, vet tenants, handle maintenance, pay insurance, and more. Investors might also hire property managers and other staff. However, you will need to document all expenses and keep records.

Deducting Ownership Expenses

Beyond the business expenses that come with running the property, you can also write off various ownership expenses. For example, you could write off business courses to learn about real estate. Investors can also write off the purchase of multiple trade publications and market reports. You can write off airfare and hotels if you must travel for business. You can also write off the mileage on your vehicle when you use it for business.

1031 Exchange

Typically, investors must pay capital gains tax on the profits from selling an investment property. However, there is a way you could defer capital gains tax and use the money to grow your portfolio. With a 1031 exchange, you can sell a property and use the money to buy another property. As long as the funds go toward purchasing a property of some kind, you can defer capital gains tax. However, the exchange has various requirements to qualify for the tax break.