K-1 loss (box 2) vs capital gain from sale of investment property

[Slawek Jakubowski]

Hello everyone,

I sold my investment property last year and realized a capital gain. I also invested in a syndication for which I received my first K-1, where box 2 shows a net rental real estate loss. Can I use that loss to offset my capital gain realized from the sale of the investment property?

Isn't it called Lazy 1031 exchange?

About me:

1. Licensed real estate agent

2. Manage portfolio of my own rentals

3. No W-2 income

Thank you in advance for your help.

[Jason Malabute]

Here's a real life example of what Austin said above. 

Since I’m a general partner on two multifamily deals and I spent over 750 hours on those deals this year, I would use a “grouping election” to qualify as a real estate professional. I can prove my hours because I started my accounting firm in late September, which means for the first eight months and three weeks of the year, I was fully focused on managing my two multifamily properties.

By using the grouping election, all of my real estate activities would be treated together. This means I can count my participation across both properties, making it easier to meet the qualifications. As a result, I wouldn’t need to show material participation for each property individually, and I could potentially use the losses from these deals to offset other income.

Even though I qualify as a real estate professional, it’s important to remember that active participation is still required to use those losses against W-2 income.