Disclaimer: This guide is intended to provide general information on rental property tax accounting. For specific advice on your own property or portfolio, speak with a tax professional who can examine your specific situation in detail.
Between multiple revenue streams, operating expenses, and strict reporting requirements, managing a multifamily portfolio is no small task. Tax season only adds to the pressure.
This guide will get you familiar with five multifamily tax strategies to help you save time, stay accurate, and leave less money on the table when filing your company’s taxes each year.
Each is specifically built for property managers with multifamily portfolios and we’ve also included specific implementation tips, so that you can start benefiting them quickly, and turn tax reporting from a drain on your team’s time to an easier part of the job.
What Makes Multifamily Tax Filing and Reporting Unique?
Compared to single-family properties, multifamily property management tax reporting can often be more complex. Instead of tracking income from just one unit, property managers must account for multiple revenue streams, including rents from dozens or even hundreds of units, along with add-ons like parking, storage, and laundry services.
On the expense side, the ledger is equally complex. Payroll, maintenance and repairs, utilities, marketing, property taxes, and insurance all add up quickly, creating a much larger set of records to keep organized.
The regulatory environment also sets multifamily properties apart. Stricter building codes, changing tenant–landlord regulations, and in some markets, rent control laws, demand careful compliance. At the same time, depreciation is more complicated. Multifamily assets can be broken into components such as roofs, flooring, and appliances, each with its own timeline for write-offs. This creates more opportunities for savings, but also more room for error.
Finally, the stakes are higher. Because multifamily buildings are high-value assets, they tend to attract greater scrutiny from auditors. And when syndication is involved, tax reporting gets another layer of complexity, as K1 distributions and limited partner investments must be accounted for with precision.
How the Right Tax Strategies Can Support Your Business
Efficient tax strategies support your property management business by lowering your clients’ tax bills. When you reduce their tax bill, it ultimately boosts their bottom line. This is true whether you’re accelerating asset depreciation, deducting property expenses, or deferring capital gains taxes through a 1031 exchange.
The key is timing. The earlier you identify and apply the right strategies, the sooner your clients see the savings and the stronger your value as their property manager.
Let’s take a look at some of the top tax opportunities to consider:
Opportunity #1: Depreciation Deductions
Depreciation is an accounting practice that spreads the cost of an asset over its useful life. By depreciating multifamily real estate, you can lower your clients’ taxable rental income.
However, you must follow the IRS’s rules regarding depreciation deductions. For example, residential rental property must be depreciated using the straight-line method over 27.5 years. That means that you can deduct about 3.63% of a property’s value each year for 27.5 years.
To do so, you must:
- Keep careful property expense records (including 1099 forms).
- Categorize them with accounting software.
- Report depreciation on Schedule E and IRS Form 4562.
Make sure to include:
- The property’s purchase date and cost basis (acquisition costs minus land value)
- Records of improvements vs. repairs (as they are treated differently by the IRS)
- The property’s allocated land value (since land itself cannot be depreciated)
Implementation tip: Use Buildium’s accounting features to track every property transaction, automatically categorize them, and generate custom reports so you don’t have to stress during tax season.
Finally, have a licensed tax professional review your tax return before filing to ensure you aren’t missing any hidden depreciation deduction opportunities. For example, you can sometimes take a “bonus depreciation” to deduct 100% of some assets’ cost in the first year of ownership.
Opportunity #2: Cost Segregation
Cost segregation can accelerate depreciation by breaking down a property into different asset categories. Instead of depreciating the entire building over 27.5 years, for example, you can separate out certain items such as fixtures, flooring, and appliances, and depreciate them over shorter periods (5, 7, or 15 years).
This gives rental owners bigger deductions earlier, lowering their taxable income and freeing up cash for reinvestment. For multifamily properties, this can mean thousands of dollars in savings.
Here’s how to do it:
- Hire a cost segregation specialist or CPA with experience in multifamily real estate.
- Request a cost segregation study that details which assets can be reclassified.
- Reclassify qualifying assets into shorter depreciation schedules.
When you file property taxes, include:
- Original property purchase documents
- Receipts, invoices, and other records of building upgrades and replacements
- Floor plans and property blueprints (if available)
Implementation tip: If you use purpose-built software to log capital improvements and categorize expenses, you’ll have the documentation you need to back up your cost segregation study without digging through years of spreadsheets.
Opportunity #3: Opportunity Zones
Opportunity Zones are economically distressed communities where real estate investments get special tax incentives as designated by a state governor and certified by the U.S. Treasury and IRS. Established under the 2017 Tax Cuts and Jobs Act, these incentives include:
- Deferring capital gains until the earlier of when you sell the investment or December 31, 2026, if reinvested within 180 days
- A 10% exclusion of the original deferred gain if the investment was held for at least 5 years (only available for investments made before the end of 2021)
- A 15% exclusion of the original deferred gain if the investment was held for at least 7 years (only available for investments made before the end of 2019)
- A full exemption on any appreciation of the investment if it is held for at least 10 years
To take advantage of these tax incentives while promoting the development of underserved communities, follow these steps:
- Identify eligible Opportunity Zones here. To date, there are 8,764 nationwide.
- Have owner clients form or invest in a Qualified Opportunity Fund that directs capital into one of these areas.
- Track holding periods closely.
Here’s what owners will need to show the IRS to qualify for the program:
- Documentation of the original capital gains they plan to reinvest
- Legal structure of their Qualified Opportunity Fund investment
- Records showing that the fund’s properties are within a Qualified Opportunity Zone
Ultimately, investing in Opportunity Zones is a great way to defer, and in some cases reduce or even eliminate, capital gains taxes, the rate of which can reach up to 28%.
Opportunity #4: Utilizing Tax Credits
While deductions lower taxable income, tax credits directly reduce the amount you owe. Some of the most common tax credits in multifamily real estate include:
- Low-Income Housing Tax Credit (LIHTC): For affordable housing projects.
- Energy-Efficient Tax Credits: For improvements like solar panels, HVAC upgrades, and building insulation.
- Historic Rehabilitation Tax Credit: For restoring qualified historic buildings.
Each of these tax credit programs can result in thousands of dollars saved. However, owners must meet their unique requirements to qualify. This may mean documenting qualifying improvements, tenant incomes, or restoration costs and then filing the appropriate IRS forms.
Consult a CPA to identify which federal, state, or local credits apply to your real estate portfolio.
Implementation tip: Use maintenance tracking software to log energy-efficient upgrades and keep a digital record of invoices, so you’ll always have proof of credit-eligible work at your fingertips.
Opportunity #5: 1031 Exchanges
A 1031 exchange lets you defer capital gains taxes when you sell a property and reinvest the proceeds into another like-kind property. For multifamily property managers looking to help owner clients grow their portfolios, this can be a powerful strategy for compounding wealth over time without losing capital to taxes after each sale.
By deferring taxes, you preserve equity that can be reinvested into larger, more profitable assets, helping you scale your clients’ holdings faster. Here’s how to do it:
- Work with a qualified intermediary (QI) to handle the exchange (required in most cases)
- Identify a replacement property within 45 days of selling the original property.
- Complete the purchase of the new property within 180 days.
When you file for the 1031 exchange, include the following:
- Original sales documents and settlement statements
- Written identification of replacement properties within the IRS timeline
- Proof of funds transfer through the QI
Implementation tip: Stay on top of the 45- and 180-day deadlines for 1031 exchanges by setting automatic reminders and sharing documents with stakeholders using property management software.
In some cases, you can complete successive 1031 exchanges to continue deferring capital gains taxes over multiple transactions, allowing you to grow your clients’ portfolios more efficiently before they eventually realize a taxable sale.
An Easier Way to Handle Property Management Taxes
While filing taxes for multifamily portfolios does take work (and often the help of a licensed tax professional), it’s also a major opportunity. If you take advantage of the strategies discussed above, you can improve your clients’ returns and your own by extension.
The key is preparation. By keeping detailed records, leaning on modern property management tools such as Buildium, and working with qualified tax professionals, you’ll not only save time at tax season but also create long-term financial benefits for your business. With these tools, you can automate some of the most burdensome tasks and have all your documents ready to file electronically well ahead of tax season.
To take a close look at how Buildium can streamline your bookkeeping and prepare you for tax season, you can sign up for a free 14-day trial or schedule a guided demo.
Frequently Asked Questions
What are the most common tax deductions available for multifamily property owners?
Common deductions include mortgage interest, property taxes, insurance, repairs, utilities, and depreciation. For multifamily portfolios, these deductions can be substantial, but only if records are accurate and complete. Property managers who keep detailed expense reports throughout the year are in the best position to capture every eligible write-off.
How can cost segregation benefit multifamily property investors?
Cost segregation accelerates depreciation by separating components of a property from the building itself, such as appliances, flooring, and fixtures. These items can often be depreciated over shorter schedules, producing larger deductions earlier. For investors, that means lower taxable income and more cash flow in the first years of ownership.
What strategies can be used to defer capital gains tax on multifamily real estate?
Two common options are 1031 exchanges and Opportunity Zone investments. A 1031 exchange lets owners sell a property and reinvest in another like-kind property while deferring capital gains. Opportunity Zones offer both deferrals and, in some cases, permanent exclusions when investing in designated areas.
Are there specific tax credits applicable to multifamily housing investments?
Yes. The most widely used is the Low-Income Housing Tax Credit (LIHTC), which supports affordable housing development. Energy-efficient upgrades, such as solar panels or high-efficiency HVAC, may also qualify for federal or state credits, directly reducing an owner’s tax bill.
How can property management companies help optimize tax strategies for multifamily portfolios?
By tracking transactions, categorizing expenses, and providing accurate reporting, property managers help owners capture deductions and credits they might otherwise miss. Using accounting software can make this process faster and more reliable, reducing the time spent preparing for tax season.
Read more on Accounting & Reporting
