In addition to generating steady income and long-term equity growth, multifamily real estate offers investors distinct tax advantages that can significantly enhance after-tax returns. Understanding these benefits is key to maximizing profitability and planning more strategically for tax season. [1] One powerful tax incentive is “bonus depreciation,” which allows real estate investors to deduct a considerable portion of specific property components (e.g., appliances, fixtures, site improvements) in the first year of ownership.
CURRENT TAX LAW MAY ENHANCE BENEFITS OF REAL ESTATE INVESTING
Rather than spreading depreciation over many years, investors can utilize accelerated deductions, often resulting in substantial paper losses that can offset other passive income and lower overall tax liability. In the sections that follow, we’ll explore how multifamily investments can offer tax efficiencies and how BAM Capital structures its offerings to help investors take full advantage.
WHAT IS BONUS DEPRECIATION?
As mentioned above, depreciation allows investors to deduct the cost of acquiring and improving a rental property over time. While land isn’t depreciable, the structure itself can be written off over 27.5 years for residential assets and 39 years for commercial. This non-cash expense helps reduce taxable income, improving after-tax returns without impacting cash flow. [1]
With an effectual tool such as bonus depreciation, investors can benefit from accelerated deductions on certain parts of a property, such as flooring and landscaping, rather than depreciating them over decades. This can result in sizeable tax savings, particularly in the early years of ownership, when bonus depreciation is applied to qualifying components. [1]
In July 2025, bonus depreciation received a major boost. The One Big Beautiful Bill Act reinstated 100% bonus depreciation for qualifying assets, reversing the previously scheduled phase-down (which was set to drop to 60% in 2024 and further in subsequent years). This legislative change allows investors to, once again, make the most of first-year deductions, an especially impressive benefit in multifamily investments. [1][2]
These “paper losses” can significantly reduce taxable income. For most BAM Capital investors, this means offsetting passive income from other investments. In some cases, like when an investor qualifies as a “real estate professional” under IRS rules, depreciation losses may also offset active income. Regardless of tax classification, depreciation is a key reason why multifamily real estate remains an innovative and tax-efficient strategy for high-earning investors. [1]
WHY IT MATTERS FOR INVESTORS
Under recent legislation (e.g., the Tax Cuts and Jobs Act), bonus depreciation is more accessible than ever. For accredited investors, it provides a rare opportunity to:
- Reduce taxable passive income
- Enhance after-tax returns
- Strategically reinvest without 1031 constraints
These paper losses don’t require a property sale because they’re built into the investment itself. And if unused in the current year, they carry forward indefinitely for use in future tax years.
HOW BAM CAPITAL INVESTORS BENEFIT
At BAM Capital, we design our investment offerings with tax efficiency in mind, leveraging bonus depreciation across our products:
BAM Multifamily Growth Fund V
🗸 100% bonus depreciation eligible.
🗸 2025 Investors may see ~70% paper losses in Year 1.
🗸 These losses appear on your K-1 and can help offset other passive income.
Development Projects
🗸 Bonus depreciation is triggered when assets are placed in service.
🗸 Investors may benefit from paper losses in the first full year of operations.
BAM Preferred Credit Fund (PCF)
🗸 While bonus depreciation is less applicable, PCF investments may qualify for the Qualified Business Income (QBI) deduction.
🗸 This could allow eligible investors to deduct up to 23% of income received (subject to individual tax circumstances).
REAL-WORLD EXAMPLE
An investor places $200,000 into Fund V
- Fund applies cost segregation and bonus depreciation.
- Investor receives a $140,000 paper loss (~70%) in Year 1.
- This loss can offset passive gains from real estate or other K-1 investments.
- Any unused loss carries forward to future years.
THE BIGGER PICTURE
Traditional 1031 exchanges are effective but complex, with strict deadlines, reinvestment requirements, and administrative hassle. Bonus depreciation is a modern alternative to 1031 exchanges, offering a simpler path:
- No like-kind rules
- No intermediary
- Flexible reinvestment timing
- Retain liquidity and control
Instead of deferring tax through a 1031, investors can potentially offset gains with passive losses, providing adaptability without sacrificing tax efficiency.
THE BOTTOM LINE
BAM Capital’s offerings aim to align with today’s tax code so you can invest confidently, knowing that every dollar is working harder after taxes. With bonus depreciation, you can turn real estate investing into a strategic tax advantage. Remember, every investor’s tax situation is unique. Please consult with your CPA or tax professional to determine how these strategies may apply to you.
SOURCES
[1]: BAM Capital. (2025). “Revealing potential tax benefits in the multifamily real estate market.” https://bamcapital.com/potential-tax-benefits-multifamily-real-estate/
[2]: Taxfyle. (2025). “How Can You Benefit from Bonus Depreciation in Real Estate as an Investor?” https://www.taxfyle.com/blog/bonus-depreciation-for-real-estate-investors#:~:text=Taxpayers%20must%20comply%20with%20evolving,depreciation%20will%20be%20fully%20eliminated.
