syndication tax simple?

Question

so i’m looking to invest in syndication, and one thing i’m concerned about is taxes.

i want to be in a passive deal, so syndication seem to check the box.  but i also want to make sure tax reporting will be simple.

is taxes for syndications as simple as importing the year end K-1 form into turbotax and thats pretty much it?  i know i’m over simplifying, but at a high level i just want some feedback on tax reporting for syndications from you experts.  thanks in advance

Omar Khan · Answer

@George T. You've hit the nail on the head. A simple K1 form isn't hard to enter especially in Turbo Tax. I let my CPA do the work because (A) hate filing taxes and (B) I have someone to blame if things aren't correct and (C) he makes my life easy.

Your biggest issue won't be tax in a syndication. It will be due diligence and vetting a sponsor.

Useful articles:

The Inside Track to Vetting A Multifamily Deal Sponsor

How to Avoid the Most Common Commercial RE Due Diligence Mistakes

Alina Trigub · Answer

@George T. There're a lot of tax professionals here on BP site. These days your CPA doesn't have to be local. Many of them handle things nationwide. Consider reaching out to them. PM me if you'd like a few names.

George T. · Answer

thanks Basit.  from what I’ve read so far it seems like state taxes could be a pain.   thanks for the feedback

Basit Siddiqi · Answer

@George T.Investing in a syndication(partnership) makes your tax profile more complex.Below are some of the nuances that you may face.1) I got a state k-1 with $10 of state sourced income - Should I file the state return? Is there a threshold for not filing?2) The state withheld $100 of state taxes - is this eligible for a itemized deduction?3) I plan to dispose of my syndication in 3 years. Will this be taxable - if yes how much and what is the tax rate?4) The partnership is showing a loss this year but its not being reported on the front page of the return - why is that?etcWith that said - no one can give you a straight forward answer without knowing how complex the investment will be and what your expectations are.

Michael Bishop · Answer

@George T., as others have said, the cost / time associated with hiring a professional are well worth it.

If you do go this route, taxes on a syndicated deal should be rather straight forward as you'll get a K-1 from the Sponsor which you can then pass to your CPA.

Ashish Acharya · Answer

@George T. , It might be a good time to get a professional help.  The complication of tax should not stop you from investing in any type of the deals. Reporting K-1s are simple depending on the Activity of the entity. But, with new TJCA 20% pass-through deduction, the K-1 is going to have more information that is required to property claim your 20% deduction.

And as @Ian Ippolito , mentioned, the entity sometimes pays composite taxes so that you don't have to individually file state tax return or pay state tax return. It will get complicated. Again, the complication of tax should not prevent you from investing if a deal makes sense.

Ivan Barratt · Answer

@George T. a man who represents himself in law or accounting usually has a fool for a client. Real Estate is a team sport. Make sure you have a good team! All the best!

Ian Ippolito · Answer

@George T.  many times the tax situation with the syndication may not be that simple. Yes, it does involve a national/Federal K-1, and that part is pretty easy.  But depending on where the syndication does business, there may also be state taxes to pay and state K1’s.  The fund may withhold the taxes on your behalf, so you don’t have to pay them, or you may be responsible for paying them yourself. State k-1s are a big pain in TurboTax, because it doesn’t really handle them well. Plus you end up paying a small fortune if you have a lot of states.

syndication tax simple?

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