Thanks for the note. I didn't realize that Search doesn't work too well for non-paid members since I have been a PRO member for a while now.
Originally posted by
@Charles LeMaire:
My perspective is MF.
@Alina Trigub - please realize that searching on Biggerpockets for a non-PRO member is not all that easy. I know, pony up and pay the fee... color me cheap.
@Duke Giordano - I'm not a CPA, but I think you will find it sort of works this way. BTW, as you mention REITs, I assume you are attempting to be a passive investor (Limited Partner), so I am going MF/Comm route, not SF, and that you are not a RE Professional.
Note that good tax planning is delaying tax or paying a lower rate or both.
Say you put in $100K and they return C-on-C of 10% and a total return of 100% on a 5 year hold. [Making the numbers easy, this is a bit optimistic and they never go perfectly!] The distributions (supposedly $10K/year) will usually come back as return of capital. You will get a K-1 each year that will show your "Capital Account" (think basis). The K-1s likely will have huge depreciation the first year and lower depreciation the following 4 years. The K-1s will show some gains or losses each year that apply to your 1040. On the last year, when it sells, you get a big check for $150K (your $100, plus the rest of the return). You will get to use some of the depreciation, but you will get to pay Cap Gain on the increase, most of the $100K. (Delayed until the end of the deal and paying Cap Gain rate on passive income!)
If you had been a RE Pro, you would have used the depreciation each year to make your W-2 income go away, but would pay Cap Gain on more when it sold. (Lower Tax Rate, that is moving earned income to Cap Gain rate and delayed!) When you are not a RE Pro, you are limited to (I think) $3K against earned income.
Say you buy into another deal the year the above deal sold; the depreciation on the bought deal will hide some gain on the sold deal. If accelerated (bonus) depreciation (cost segregation) is still available, it will be a large amount removed from the prior gain.
You may wish to form a pass through LLC so that the gains and losses are summed before passing to you. I'm not sure this makes a hill of beans, as it is pass-through, but my CPA seems to think it is better. Once you start getting multiple K-1s, you might let a pro do your taxes...
Regards,
Charles LeMaire