All Forum Posts by: Tushar P.

@Eamonn McElroy I see, so there is no general rule. For me, it was for CO.  And looking at the CO state tax form, it does start with federal and then goes into state level.

I also have K-1s from GA (heavily invested in Atlanta) but the sponsor filed a composite return for one of them, and other K-1s are for either opportunity zones or blank K-1s only showing the amount invested.

Also have K-1s from Illinois (heavily invested in Chicago) but all the K-1s in the first year are blank, only showing the amount invested. Hence no need for state filing there.

Looking at the state tax rates, I don’t think I will now invest in CA, OR, ID, MN, WI, IA, NY, NJ, ME, DC. Among these, I did look into investing in CA, DC, NY, WI.

Thankfully all the investments in CA and DC are opportunity zones. But that makes me wonder if no tax on earnings (for 10-yr investment) is applicable only at federal level.

Anyways, thanks for clarifying the state return requirements.

Update on previous post.

Filed the federal return by treating the loss in Schedule K-1 as passive. However, state tax return was not filed because “the info in 1040 flows into the state tax return, hence the loss will be captured when filing the state tax return in the future”. Having never filed any state tax return before, I guess state tax return forms don’t exist in isolation but are filed together with the federal return, with various info in the federal return passing into the state return?

Anyways, am done with this years filing.

@Evan Loader can you provide update on what you did? Filed the state return or not? And what was the reason.

@Kevin C. that makes sense. I see some states have free e-file via their websites: for example just checked for CO and they have it. For such states, perhaps the LP could file non-resident state returns themselves if the CPA is pushing back saying no need to file state returns since there is no income but only loss.

Also wonder if the GP can selectively file composite returns for some LPs who want it. For example, for one of the GA investments I did receive a K-1 but with a note that composite returns have been filed. So no need to file GA state return for that one, even though it showed income instead of loss. But the GP apologized for filing composite returns as it resulted in some LPs not being able to utilize their GA losses. And then the GP mentioned that next year they will not file composite returns. So it looks like some LPs may prefer composite return but other LPs may not. And I’m not sure if the GP can selectively file composite returns for the LPs who prefer it.

@Kevin C. skynet? I thought skynet was into bigger things than disallowing tax savings 😉

Is the state tax on depreciation recapture also 25% or is it same as the state tax rate?

For example, CO has a state tax rate of 4.63%. Assuming LP has invested in a real estate syndication in CO and the asset sale price a few years later is much higher than the unadjusted cost basis, how much CO state tax will the LP pay on depreciation recapture: 25% or 4.63%?

That’s the point mentioned by @Michael Plaks - whether it is worth filing the state tax return or not. Especially if losses in K-1 are not big or if the tax rate on depreciation recapture is very low (4.63% in the example above).

I am assuming form 8582 will take care of the depreciation recapture  tax at the federal level, so no issues there. But the other question is why  wouldn’t form 8582 or “contemporaneous record” qualify as a record of passive loss at state level? Just because skynet wouldn’t allow it?

Yes, very likely there can be more mistakes. I would have expected someone with 15 year experience plus their own accounting firm to know these things that I learned in just last few days (with your help, of course, and also thanks to @Basit Siddiqi @Eamonn McElroy @Taylor L.)

But it’s possible that their specialization is something else (like corporate taxation) rather than real estate. Though I would have thought PAL rules would be a basic thing to know for CPAs irrespective of specialization.

Thanks @Michael Plaks

If there can be immigration issues then I need to resolve this and file before Oct 15 😚

Here is my action plan: 

1) contact the GP CPA and confirm that the loss is passive for LP 

2) share the response with my CPA, include excerpts from IRS pub 925, IRS PAL ATG, other online resources which confirm that the loss is passive 
3) If 2 fails then propose 3-way call including GP CPA
4) if 3 fails then furnish a letter from a tax attorney to confirm that the loss is passive 

5) if 4 fails then try turbo tax or hrb and suspend the loss using form 8582

6) if 5 fails then let the oct 15 deadline pass and then file before dec 31

Already contacted the GP CPA. Also posted the issue on the e-forum of my legal plan for a tax attorney to pick it up and offer help. Also contacted some lawyers (from my legal plan) who deal with real estate. I know 5 will not work as they don’t have the feature to defer capital gains that are invested in opportunity zone, so I will have to somehow manually record that in 8949 and transfer to Schedule D.

After this is over, I will apply for a CPA license - I am now wondering if it is as easy as getting a license for property manger or real estate agent 😉

@Michael Plaks yes, it was July end and not June (thanks for correcting that) but I guess you are in high demand to stop accepting by June anyways.

I did pay a bigger amount when I extended the filing date, so I don’t think I owe money to the IRS. I should get $2-3k back. Does that mean filing after Oct 15 will not incur penalties?

I can still try to explain the PAL rules set by the IRS to the current CPA and request to change the tax return before filing...

From your note, I’m guessing a lot of damage was caused by Tropical Storm Beta. Not sure what happened outside during the week - our offices are closed indefinitely so I’m working from home. Just stayed inside and watched/heard the persistent rain for days. I haven’t gone outside the house for 10 days now (though MS Teams video calls provides some respite) but have plans to meet up with a friend for lunch tomorrow 🙂👍

@Michael Plaks I’m based in Houston and I had contacted you for help back in June but I understand you are overbooked 🤗

Good thing is that I haven’t signed yet, though the deadline is Oct 15 😅

@Eamonn McElroy thanks for the note. I’m beginning to think it’s the CPA rather than the GP

@Basit Siddiqi yes I’m a little concerned, so I checked with the CPA and the response is “the loss is non-passive because that is how it is reported in the K-1”. 🙄

I have not really looked into my return for last ~6 years: every year I just dump the documents and then get a letter with the amount I need to pay to the IRS. But now that I’m trying to diversity my investments into real estate, I am looking into my tax returns and figuring out a few things myself. I’m not an accountant or a real estate professional, but what I gather is that even if I was a real estate professional, I would not be able to deduct ~$12k loss from my income if the income exceeds $150k.

@Taylor L. good point, I need to check with the GP.

@Michael Plaks thanks for explaining - seems like there is lack of clarity even among folks who handle tax preparation as professionals 😏

One thing that struck me when I looked at my return is that my losses have been categorized as non-passive. I find that surprising and wondering how that is possible.

As someone with a full-time W2 job who is a limited partner in a real estate syndication with less than 1% share and does not satisfy any material particiapation criteria, I would have expected the loss to be passive. And in the absence of any passive income, these passive losses will have to be suspended and carried over. But the loss from Schedule K-1 has been categorized as non-passive and deducted from the W-2 income. I hope the CPA knows what they are doing 😅