All Forum Posts by: Jeff Nash

I think you are asking about a partnership K-1 and perhaps the situation relates to the difference between a general versus limited partner where the general partner has more potential liability beyond the investment at risk and could be subject to self employment taxes.  There is no way to fully understand the context of the situation though without looking at the prospectus or marketing material and it is really not helpful because each investor or taxpayer has a different tax and financial situation so you can’t view the scenario in isolation.  K-1’s and 1099s are just tax reporting forms.  The implications of each though could matter as previously noted. 

On the other hand, I’ve seen plenty of advertisements for funds that tout “no K-1s” and I assume the selling point there is that you won’t necessarily be delayed in filing your taxes because the K-1s aren’t available until after the original deadline and/or that a K-1 by itself makes tax reporting more challenging.

@Steve K. is spot on with his reply and scrutiny of the wording.  In this case assuming the fact pattern is in the past tense and has already occurred, you might consider a qualified opportunity fund and using the cost basis in the relinquished properties to reinvest in replacement properties.  This decision of course would be based on your risk tolerance, investment objectives, time horizon and liquidity needs. There are other potential options too depending on the entirety of your situation.

@Stanley J Black can help.

@Ryan Miller on the surface that might seem "fair" to an outsider like me that does not have all of the details, so you really need to work it out with your partner and some professionals to structure it properly.  There are other things that might come up like guaranteed payments or priority profit allocations.  The good thing like I mentioned though is that if you start the allocation %s one way, and for whatever reason believe it ought to be changed or updated, you have that flexibility with a partnership so it is not rigid. 

A partnership (general or limited), multi-member/manager LLC, or even less formal joint venture are flexible in nature so you can allocate the sharing ratios (capital, profits and losses) any which way you agree upon and changes can be made based on facts and circumstances in any given year (ie - you make special allocations). I think your decision on what's reasonable and fair and how you decide to operate heavily depends on the 2 factors you noted - your time and effort and expertise and the capital at-risk to your potential partner. How would you go about assigning the value to what you offer which is more subjective compared to actual dollars committed (could be equity or debt or a combination to your partner)? I would suggest you formally execute an agreement (file with the Secretary of State, get an operating and/or partnership agreement, open separate bank accounts in the name of the entity, maintain minutes and document key decisions, etc) and work with an attorney and/or tax professional (CPA and/or EA). They will quiz you on your goals, objectives, time horizon, pros and cons of different ways to operate from a legal and tax perspective, etc so you can do what's best in your opinion and unique situations.

Alex, it would be treated the same as it had been before (taxable ordinary income). I assume you asked the question because you are curious if there are continued tax benefits like tax deferral with an IRA rollover.

@Denver McClure

What someone seeks out an advisor for varies based on their age, risk tolerance, investment objectives, and most importantly, their goals.  Some advisors are holistic in nature and some have a more singular focus.  One thing that all advisors have to do is manage expectations and the psychological aspect of financial decisions.  I think it's safe to say that we all can be our own worst enemy and make decisions that are not always rational.  That's where the advisor comes into play.  He or she should have adequate experience and training to help talk through various scenarios, make decisions on your behalf if there is discretion, and help build your wealth depending on your goals and things unique to you.  You arguably will have a better chance of success if you don't go at it alone.  It's like going to the gym or working out, if you have someone to work with your chances of sticking to it and motivating or having healthy competition increase and so your performance should be better.  I think I'm reiterating what @Andrew Bosco is stating about piece of mind.  

On a side note since we taking part in a real estate forum, an advisor that supports many different asset classes and is multi-faceted can help you with due diligence and seek out alternatives for you so once again, it's not all on you.  Saving you time, giving you ideas, and helping you make the right asset class allocations over different periods of time is the value.

You don’t have to amend prior tax returns but a change in accounting method (Form 3115) and catch-up adjustment (481(a() would need to be calculated and reported.

He needs to get connected with someone that can ask him about his goals (including legacy planning), analyze his statement of net worth and tax situation, etc.  Some of the preceding comments might work in part or entirely but as any CPA will tell you "it depends".  It sounds like he has plenty of directions to go in which is a plus.  Those professionals you mentioned should all be working together and not individually.  Communication usually is the problem of why things do not get done properly as the smartest folks are not in the room at the same time to hash things out.