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  • Writer's pictureMAREJ

Multifamily Matters: The #1 Property Type Continues to Hold Strong

The multifamily market remains consistently steady and robust, even through the challenges of the last year. Along with providing the opportunity to earn rental income, multifamily projects offer several tax benefits to the thoughtful investor. Recent provisions in the CARES Act and TCJA have brought depreciation deductions to an all-time high, and this continues to drive interest in multifamily, particularly at a time when cash flow is all-important.

Here are just some of the factors making multifamily properties of interest:

• The Tax Cuts and Jobs Act (TCJA) brought 100% bonus depreciation through the end of 2022 and made acquired assets eligible for said bonus.

▪ Property ABC, a garden apartment complex, was acquired and placed-in-service in September of 2018. The total depreciable basis was $37,445,200. Capstan engineers were able to move 18.7% of assets into 5-year personal property, and another 7% of assets into 15-year land improvements, resulting in a first-year tax savings of $3,142,872.

• The CARES Act from March 2020 temporarily removed two unfavorable loss limitations that many real estate investors would encounter: the 80% net operating loss limitation and the $500K overall loss limitation.

• The Tangible Property Regulations (TPRs) are still very much in play, augmenting the utility of the newer legislation. The TPRs guide the taxpayer in making expense and capitalization decisions, to ensure that all possible assets are capitalized.

• Partial Asset Dispositions are very useful in a renovation scenario, as the remaining depreciable basis of the discarded assets may be immediately written off in the current year. Data generated by a Capstan Cost Segregation report can be used to produce and support disposition tables.

▪ In December of 2019, Project ABC (above) underwent a renovation with an associated depreciable basis of $3M. The same Capstan engineer returned to the property to document the discarded assets. He was also able to move 32% of the new assets into 5-year. Between both strategies the first-year tax savings on the renovation was $325,000.


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