Tax incentives for those who participate in a syndication deal

6 Replies

I see and hear a lot about the benefits for the person who is actively syndicating a deal. What about those who participate in that syndication, aside from the fact that their involvement is much more passive in nature. Does simply participating in a syndication afford that person the cadre of tax incentives/appreciation/etc?

So I’ll let you know what I know with the caveat that I’m not a lawyer, CPA, nor do I know your tax situation or how the syndications you are considering are structured.

If you have pass-through income from a LLC then you can always offset passive income with passive losses. So that LLC will give you a K-1 that will have both income and losses. Real estate often can have passive losses, from deprecation, capital expenses, etc which offset passive income. So if passive losses equal passive income then the income is tax free. Losses are “paper” so there is still income. Additionally, you can offset 25k of active income (like W2) with passive losses if have an AGI of 100k or less. You can do this to a limited degree when your AGI is 100-150k. There are special rules if you qualify as a real estate professional, your losses are not capped. A quick google will get you what qualifies you as an RE professional.

If you are in a syndication that is structured as a LLC then you get the benefits I wrote about above.

I hope that helps answer your question and make sure you get advice for your exact situation from a professional!

Originally posted by @Lee Ripma :

So I’ll let you know what I know with the caveat that I’m not a lawyer, CPA, nor do I know your tax situation or how the syndications you are considering are structured.

If you have pass-through income from a LLC then you can always offset passive income with passive losses. So that LLC will give you a K-1 that will have both income and losses. Real estate often can have passive losses, from deprecation, capital expenses, etc which offset passive income. So if passive losses equal passive income then the income is tax free. Losses are "paper" so there is still income. Additionally, you can offset 25k of active income (like W2) with passive losses if have an AGI of 100k or less. You can do this to a limited degree when your AGI is 100-150k. There are special rules if you qualify as a real estate professional, your losses are not capped. A quick google will get you what qualifies you as an RE professional.

If you are in a syndication that is structured as a LLC then you get the benefits I wrote about above.

I hope that helps answer your question and make sure you get advice for your exact situation from a professional!

This is a terrific answer! No doubt, I would look into this with a professional if it were to happen. To be honest, I'm not in a position at this moment where I'm considering participating in a syndication deal... I'm much more interested in being close to the structuring of a syndication possibly. (But obviously I have a lot to learn!) It just occurred to me that we hear so much about investing from the perspective of the person setting up the deal, and little about those passive investors looking to participate. Appreciate your input!

@Jason Howell I completely agree with an excellent and detailed explanation you received from @Lee Ripma . What I'll add is the main difference between REIT and syndication structure is that as a passive investor in a syndication, you actually become a partially property owner and get all of the tax benefits of it. Another great benefit, an equity partner is a limited partner with no liabilities on your part.

Great info in these answers. When do you become the partial owner in the eyes of the IRS? The day you commit, the day you wire funds, the day the property purchase closes? for example, what if i commit/wire money in 2019 for a deal that closes end of January 2020? What year can i claim the tax deductions? Tnk you! 

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