The Tax Benefits of Owning Multifamily Investment Properties

30 January 2026

Investing in multifamily properties isn’t just about generating consistent rental income—it also comes with some significant tax advantages. If you’re a real estate investor, understanding these benefits can help you maximize your profits while keeping more of your hard-earned money. From depreciation to tax deductions, let’s break down the key ways multifamily properties can save you money on taxes.

1. Depreciation: A Powerful Tax Tool

One of the biggest tax benefits of owning multifamily properties is depreciation. The IRS allows you to deduct the “wear and tear” on your property over time, which helps reduce your taxable income.

How Does Depreciation Work?

The IRS generally allows you to depreciate a residential rental property over 27.5 years. This means you can take the total cost of the building (excluding land) and divide it by 27.5 to determine your annual depreciation deduction.

For example, if your multifamily building (not including land) costs $1,000,000:
$1,000,000 ÷ 27.5 = $36,364 per year in depreciation deductions.

That’s $36,364 you can deduct from your taxable income every year—without actually spending a penny!

Bonus Depreciation & Cost Segregation

If you want to accelerate your tax savings, you might consider a cost segregation study. This allows you to classify certain parts of your building (like appliances, carpet, and fixtures) as shorter-lived assets, meaning you can depreciate them faster.

With bonus depreciation, you may even be able to write off a large portion of these items in the first year. This strategy can significantly reduce your tax bill, especially in the early years of owning the property.

2. Mortgage Interest Deduction

If you financed your multifamily property with a loan, you’re in luck! The IRS allows you to deduct the interest you pay on your mortgage. Since the interest portion of a loan payment is often higher in the early years, this deduction can be a game-changer for new investors.

For example, if you paid $50,000 in mortgage interest this year, you can deduct the full amount from your taxable income. This can lead to significant savings, especially on high-value properties.

3. Property Tax Deductions

Another big perk? You can write off your property taxes on your investment property. Since property taxes can be quite hefty—especially in high-demand areas—this deduction helps offset some of that burden.

Unlike depreciation (which is more of a paper loss), your property tax bill is an actual expense, so getting this deduction is a direct way to reduce your taxable income.

4. Repairs & Maintenance Write-Offs

Keeping your multifamily property in top shape isn’t just good for tenants—it’s also great for your tax return. The IRS allows you to deduct expenses related to repairs and maintenance, including:

- Fixing a broken AC unit
- Painting the exterior or interior
- Replacing damaged flooring
- Repairing plumbing and electrical issues

The key here is that the expense must be considered ordinary and necessary for the upkeep of the property. So, while fixing a leaking roof is deductible, upgrading to a luxury roof may not be (since it’s considered an improvement rather than a repair).

5. Pass-Through Business Deduction (Section 199A)

If you own your multifamily property through an LLC, sole proprietorship, or another pass-through entity, you may qualify for the 20% pass-through deduction on your rental income.

Here’s how it works: If your net rental income is $100,000, you could potentially deduct 20% ($20,000) from your taxable income. This tax break was introduced under the Tax Cuts and Jobs Act (TCJA) and is set to last until at least 2025.

6. Deferring Taxes with a 1031 Exchange

Want to sell your multifamily property but don’t want to pay capital gains tax? The 1031 exchange might be your best friend.

A 1031 exchange allows you to sell one property and reinvest the profits into another “like-kind” property without paying capital gains taxes immediately. Instead of losing a chunk of your profit to taxes, you can keep your money working for you by reinvesting it in another income-producing property.

Here’s an example:
- You sell a multifamily property for $2 million with a $500,000 gain.
- Normally, you’d owe capital gains tax on that $500,000.
- But if you use a 1031 exchange to buy another property, you can defer paying those taxes indefinitely (or until you sell without reinvesting).

This strategy allows investors to scale their portfolios tax-efficiently over time.

7. Writing Off Professional & Management Fees

Managing a multifamily investment isn’t always a one-person job. If you hire a property management company, an accountant, or a real estate attorney, those costs are tax-deductible.

Some common deductible expenses include:

- Property management fees
- Legal and accounting fees
- Real estate agent commissions
- Advertising and marketing costs

Since most investors rely on professionals to streamline their operations, this deduction offers another great way to offset taxable income.

8. Home Office Deduction (For Landlords Who Self-Manage)

If you’re managing your multifamily property yourself, you might be able to deduct home office expenses. The IRS allows landlords to write off a portion of their rent, mortgage, utilities, and internet costs if they use a dedicated space in their home for business purposes.

To qualify, your home office must be:

- Exclusive to your real estate activities
- Used regularly for business purposes

This deduction can be particularly useful for landlords who handle leasing, tenant communications, and financial operations from home.

9. Retirement Contributions & Self-Employment Tax Savings

If you own your properties as a passive investor, you typically don’t pay self-employment taxes on rental income, which means more money stays in your pocket.

Additionally, if you earn rental income through a business entity, you could set up a Self-Directed IRA or Solo 401(k), allowing you to invest tax-free or tax-deferred while saving for retirement.

Final Thoughts

Owning multifamily investment properties isn’t just a smart way to build wealth—it also comes with some serious tax advantages. From depreciation and mortgage interest deductions to 1031 exchanges, the tax code is packed with opportunities to help real estate investors keep more cash in their pockets.

If you want to maximize your tax benefits, it’s a good idea to consult with a tax professional who specializes in real estate. With the right strategy, you can boost your returns, minimize taxes, and grow your real estate portfolio more efficiently.