How Passive Real Estate Investing Can Help Reduce Your Tax Bill

One of the most compelling reasons savvy investors turn to real estate isn’t just the potential for strong returns, it’s the powerful tax advantages that come with it.

In particular, passive real estate investing typically through private real estate funds, syndications, or REITs can offer a host of strategic tax benefits that reduce taxable income and enhance after-tax returns. 

Let’s explore some of these benefits, and how two of our current investment opportunities,  Sinatra & Shnow OZ Fund and the Solmar St. Pete OZ Fund, exemplify smart, tax-advantaged real estate investing.

• Depreciation is one of the most powerful tax tools in real estate. The IRS allows investors to depreciate the value of the building (not the land) over time even if the property is actually appreciating in market value. For passive investors, this may mean that they can receive cash flow distributions from rental income while showing a tax loss on paper. Not only that, but these losses can also be used to offset other passive income, reducing their overall taxable income.

• Capital gains may be deferred or potentially eliminated with investment vehicles such as 1031 exchange or Qualified Opportunity Zones. When real estate is sold for a profit, it’s typically taxed at the long-term capital gains rate which is often lower than your ordinary income tax rate. In particular, eligible gains (such as sale of real estate, a business, stock or cryptocurrency) that get invested into Opportunity Zone Funds may have potential to avoid paying taxes on the gains after a 10-year hold period.

• Depending on where the property is located, and your own state of residence, there may be additional tax benefits or considerations. Some states offer real estate-specific deductions or credits, while others may have more favorable treatment of capital gains or pass-through income.

This makes it even more important to work with real estate sponsors and advisors who understand how to optimize tax outcomes based on your unique situation.

It’s not just about wealth creation; it’s about smart, tax-efficient wealth creation.

Sinatra & Shnow OZ Fund: Historic Preservation Meets Tax-Efficient Impact

Co-sponsored by Buffalo Bills star Dion “Shnowman” Dawkins, the Sinatra & Shnow OZ Fund blends the benefits of Opportunity Zone investing with Historic Tax Credits — a combination that may accelerate capital return to investors sooner than typical OZ projects.

For investors, this project delivers:

• OZ tax benefits with added Historic Tax Credits
• Early capital return potential
• A mission-driven investment with celebrity co-sponsorship
• Prime downtown location amid rising housing demand

Solmar St. Pete OZ Fund – Luxury Living in a High-Growth Market

Solmar St. Pete OZ Fund is a single-asset Qualified Opportunity Fund developing a Class A luxury high-rise apartment building in prime Downtown St. Petersburg, FL. With strong population growth, a vibrant urban core, and a lack of high-end rental inventory, this project combines rare luxury real estate with powerful tax deferral and elimination potential.

For investors, this project delivers:

• Long-term tax-free growth potential after a 10-year hold
• Class A luxury development in a thriving Florida market
• Single-asset focus with streamlined execution
• High-end design and amenities tailored to premium renters

As always, it’s essential to consult with a qualified CPA or tax advisor who understands real estate. But if you’re looking to improve your after-tax returns while investing in tangible, income-producing assets, passive real estate could be a game-changer for your portfolio as well as your tax bill.

Have questions or thoughts about passive real estate investing?

If you’re considering private real estate funds and have questions about how it works, get in touch with us below to schedule a call. We are happy to walk you through the process.