Investing in real estate syndication is all about getting the best return, so taxes are probably the last thing on an investor’s mind.
Although taxes are often viewed negatively, they aren’t always the worst thing in the world. Why? The reason for this is that real estate investors benefit from favorable tax regulations.
Finding ways to reduce your tax burden is one of the biggest challenges when looking for the best real estate investment opportunities. Fortunately, there are a few significant tax benefits to investing in real estate syndication.
Here is a look at some of the primary ways that syndications can help you save when you pay taxes.
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Real Estate Syndication: What is It?
An investment partnership called real estate syndication, or property syndication, involves a group of investors purchasing large properties together. They usually combine their capital, skills, and resources for the acquisition and management of real estate assets.
There is a wide range of assets that investors can invest in through property syndication, including land, apartments, parks, etc.
Real Estate Syndication Tax Benefits
Syndication is popular among investors because of the tax benefits it offers. There are a variety of benefits that can be obtained through tax deductions, deferral of income taxes, and reduced tax rates.
Investing in real estate syndication can provide the following advantages on your tax:
Depreciation
Real estate syndication offers one of the most significant tax benefits for many investors: depreciation. Due to this, properties that lose value over time are able to be deducted from taxable income.
For instance, if the condition of residential real estate deteriorates over time, the cost of maintenance and repairs would increase. Aside from property deterioration, you can use these expenses as a way to write off some of your income during the tax season. As a result of depreciation, an investor pays capital gains tax at a lower rate.
You can use a loss on paper to deduct depreciation and offset passive gains from other investments. In the event that these losses exceed passive income, investors can carry them forward until passive income increases in the future.
Capital Gains Taxation Rates Reduced
Profits from property sales are called capital gains. It’s true that capital gains fall under income, but their tax rates are lower than traditional income rates.
Additionally, gains from real estate held for more than a year are treated as long-term capital gains. In this way, real estate syndication generates tax-efficient income, which is advantageous to passive investors.
Mortgage Interest Deductions
In the case of mortgage interest deductions, property owners can deduct the interest they pay on building loans against their taxable income, thereby reducing their tax liability.
Non-Payment of Self-Employment Tax
In the same manner, as regular jobs, investors in property syndication can earn income on a monthly or quarterly basis. However, these individuals are not required to pay self-employment taxes. Using this benefit, they avoid capital gains tax, which normally takes a large chunk out of their profits.
The 1031 Exchange
In a 1031 exchange, an investment asset can be swapped for another asset for which capital gains taxes are deferred. The exchange is named after Section 1031 of the Internal Revenue Code.
The 1031 exchange allows property owners to exchange their assets for similar ones within a specific period of time. Capital gains taxes are deferred through this strategy, thereby freeing up capital for investment.
Low Capital Gains Taxes Through the Carryover of Losses
It’s not unusual for the first year of syndication to have a high depreciation rate and mortgage interest deductions. A simple solution to this problem is to carry the losses over to later years.
Refinancing
The process of refinancing involves revising a credit agreement and replacing the existing mortgage with a new loan. A refinance request follows the same procedures as a mortgage application. In most cases, lenders will assess your financial situation in order to determine your eligibility.
Refinancing changes the repayment period for the loan. A real estate syndicate investor’s gains are enormous when all the tax benefits and deductions are taken into consideration. As a result, investors can reap the rewards of equity growth without selling their properties and paying capital gains tax.
Reap Syndication Tax Benefits with Saint Investment Group
How much real estate syndicators make depends if their management team can balance maintenance costs with net income. As important as it is to keep expenses low, you don’t want to keep them so low that the asset is negatively affected and the tax benefits are no longer advantageous to you. Fortunately, Saint Investment Group has a team of commercial real estate experts at your disposal.
With Saint Investment Group, you will have a solid foundation for passive real estate investment. Every deal is carefully analyzed, and you receive detailed reports about your real estate syndication.
Our team at Saint Investment Group is here to assist you in starting your investment journey. We can guide you step by step through all three phases of real estate syndication and how you can get involved. Feel free to email us at info@saintinvestment.com or contact us at 949-881-7128 at Saint Investment Group today!
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President of Saint Investment Group
Nic is a two decade seasoned expert in investing and capital raising, specializing in Real Estate and debt markets. With Saint Investment Group, he leads large-scale distressed asset purchases and innovative syndications for investors.
