Real Estate Professional Status and Loss from Syndication-Passive
Investor · Sugar Land, TX · Member since 2016 · 109 posts · 46 votes
Real Estate Professional Status and Loss from Syndication-Passive
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Accountant · Philadelphia, PA · Member since 2013 · 303 posts · 210 votes
5yGenerally no, but there are certain circumstances where it could be yes based the level of participation in the LP, on whether you are electing to group all your real estate activities and the % of gross rents from the LP compared to your overall R/E business.
https://www.law.cornell.edu/cf...
"(f) Limited partnership interests in rental real estate activities -
(1) In general. If a taxpayer elects under paragraph (g) of this section to treat all interests in rental real estate as a single rental real estate activity, and at least one interest in rental real estate is held by the taxpayer as a limited partnership interest (within the meaning of § 1.469-5T(e)(3)), the combined rental real estate activity will be treated as a limited partnership interest of the taxpayer for purposes of determining material participation. Accordingly, the taxpayer will not be treated under this section as materially participating in the combined rental real estate activity unless the taxpayer materially participates in the activity under the tests listed in § 1.469-5T(e)(2) (dealing with the tests for determining the material participation of a limited partner).
(2) De minimis exception. If a qualifying taxpayer elects under paragraph (g) of this section to treat all interests in rental real estate as a single rental real estate activity, and the taxpayer's share of gross rental income from all of the taxpayer's limited partnership interests in rental real estate is less than ten percent of the taxpayer's share of gross rental income from all of the taxpayer's interests in rental real estate for the taxable year, paragraph (f)(1) of this section does not apply. Thus the taxpayer may determine material participation under any of the tests listed in § 1.469-5T(a) that apply to rental real estate activities."
6 Replies
- 5yAndrew HoganPro MemberRental Property Investor · Indianapolis, IN · Member since 2016 · 559 posts · 463 votes
Such a great tax question! Looking forward to a CPA to answer this one because I have heard it both ways.
I have heard that as long as the rentals are considered passive, they can be offset with passive losses.
I've also heard (in the case of realtor commissions) that they need to have an "active" role in the syndication in order to offset their other real estate income namely commissions... - Accountant · Philadelphia, PA · Member since 2013 · 303 posts · 210 votes5y
Generally no, but there are certain circumstances where it could be yes based the level of participation in the LP, on whether you are electing to group all your real estate activities and the % of gross rents from the LP compared to your overall R/E business.
https://www.law.cornell.edu/cf...
"(f) Limited partnership interests in rental real estate activities -
(1) In general. If a taxpayer elects under paragraph (g) of this section to treat all interests in rental real estate as a single rental real estate activity, and at least one interest in rental real estate is held by the taxpayer as a limited partnership interest (within the meaning of § 1.469-5T(e)(3)), the combined rental real estate activity will be treated as a limited partnership interest of the taxpayer for purposes of determining material participation. Accordingly, the taxpayer will not be treated under this section as materially participating in the combined rental real estate activity unless the taxpayer materially participates in the activity under the tests listed in § 1.469-5T(e)(2) (dealing with the tests for determining the material participation of a limited partner).
(2) De minimis exception. If a qualifying taxpayer elects under paragraph (g) of this section to treat all interests in rental real estate as a single rental real estate activity, and the taxpayer's share of gross rental income from all of the taxpayer's limited partnership interests in rental real estate is less than ten percent of the taxpayer's share of gross rental income from all of the taxpayer's interests in rental real estate for the taxable year, paragraph (f)(1) of this section does not apply. Thus the taxpayer may determine material participation under any of the tests listed in § 1.469-5T(a) that apply to rental real estate activities."
- 5yAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
Originally posted by @THU NGUYEN:
Hi All,
I am claiming RE professional in 2019. I'm active in managing all my rentals, my flips etc...However, I have a passive loss from a K1 issued by the syndication deal where I am set up a limited partnership. Can I take offset this passive loss against my other active income generated from W2, flips, rental, private lending ect?
Appreciate if anybody knows and can share/advise?
Thu
You cannot. You have to materially participate in the rental activities to convert them from passive to non-passive.
Just having the status doesn’t automatically change activities to non-passive. That applies to both small rentals or the syndicated deal.
This is one thing people tend to mis = Even when you do not meet the material participation with the real state status, you can use the active rental to deduct 25K from the passive activities, If other requirements are met.However I doubt that syndicated deal is an active rental activity for you because you have to own at least 10% and make some management decisions. That’s a high-level summary
INVESTOR FRIENDLY CPA®5241 Reviews - Realtor · Lubbock, TX · Member since 2020 · 144 posts · 80 votes5y
I do not believe you can. How much of the ownership do you control?? Over 10%?
- Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes5y
Originally posted by @Ashish Acharya:
Originally posted by @THU NGUYEN:
Hi All,
I am claiming RE professional in 2019. I'm active in managing all my rentals, my flips etc...However, I have a passive loss from a K1 issued by the syndication deal where I am set up a limited partnership. Can I take offset this passive loss against my other active income generated from W2, flips, rental, private lending ect?
Appreciate if anybody knows and can share/advise?
Thu
You cannot. You have to materially participate in the rental activities to convert them from passive to non-passive.
Just having the status doesn’t automatically change activities to non-passive. That applies to both small rentals or the syndicated deal.
This is one thing people tend to mis = Even when you do not meet the material participation with the real state status, you can use the active rental to deduct 25K from the passive activities, If other requirements are met.However I doubt that syndicated deal is an active rental activity for you because you have to own at least 10% and make some management decisions. That’s a high-level summaryIn her list of activities, she also included rentals. I know the W-2 and flips are considered active, but would the rentals be considered passive as they would be included in Schedule E along with the syndicated investments?
- Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes5y
1) There are ordinary/W2/active income on one side. Lets call that the :( side.
2) And there is the happy side... passive income (syndications, passive partnerships ie medical/dentist offices) and passive losses (depreciation, bonus depreciation via cost segregations common in syndications). You can you passive losses to neutralize/eliminate passive income. Thats what this is the good side and why passive losses are called PALs too for passive activity losses.
So there is a barrier between 1 and 2 above. You cannot offset passive losses (PALs) for active income. UNLESS you are are real estate professional status for tax designation purposes.
PS - I am not an attorney but I became financially free doing this for myself after 10 years working as a w2 engineer :( world
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