Tax implications of equity syndication deals

[Jacob Vorreuter]

What are the tax implications of investing in an equity syndication deal as a limited partner?

I’m considering investing in commercial multi-family equity syndication deals through a crowdfunding platform. I’ve reviewed the tax sections of several PPMs, but I’m still struggling with the legal language.

I’d like to understand the following:

1. How are gains taxed? Limited partners would expect to receive regular cash distributions, followed by proceeds from the exit event (sale or refinance). This is all considered passive income, correct? Are the regular cash distributions taxed as ordinary income or capital gains? And are the proceeds from the sale or refinance taxed as long-term capital gains?
2. What passive losses can be claimed by limited partners to offset the above passive income? It seems clear from the PPMs that LPs can claim depreciation deductions proportional to their share of the value of the property. Are LPs typically able to claim deductions on a portion of loan interest, property taxes and other commonly deductible expenses?

I understand every investment is different, but any insight into the LP tax implications of a typical apartment syndication deal would be greatly appreciated.