Rental Property Investor · San Francisco, CA · Member since 2019 · 42 posts · 16 votes
How do single-property LLCs (I'm most interested in multi-family, but I'm guessing this answer could apply to any property type) typically allocate tax losses to their partners/investors?
For example, if a given property generates $100k in losses (typically due to depreciation), would those losses typically appear on the partner's K1 forms in proportion to their equity percentage? Thus, an investor that had put up 10% of the equity would see a -$10k loss on their K1?
Or, are other allocations, that aren't strictly related to investor equity, typical?
Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
7y
@Cooper Marcus it all depends on what is stated in the operating agreement and or the PPM regarding members shares. It can be allocated any way the sponsor, partners and the investors agree.
Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
7y
@Cooper Marcus it all depends on what is stated in the operating agreement and or the PPM regarding members shares. It can be allocated any way the sponsor, partners and the investors agree.
Rental Property Investor · San Francisco, CA · Member since 2019 · 42 posts · 16 votes
7y
That makes sense @Greg Dickerson and it aligns with what I'd learned - what I'm wondering is what is typical - what sort of allocation would cause an experienced investor to see it and skip right past it as they review the deal?
That makes sense @Greg Dickerson and it aligns with what I'd learned - what I'm wondering is what is typical - what sort of allocation would cause an experienced investor to see it and skip right past it as they review the deal?
It’s typically done on a Pro-rata share based on the amount of equity invested.
Not sure what you mean by read it and skip it other than people only know what they know and don’t know what they don’t know.
I come from the tech startup world - in this industry, there are various deal terms (in startup financing agreements and in startup employment agreements) that are considered typical, and when you see them proposed, you tend to skip right past them as you read the agreement - instead, you focus on the "unusual" portions, and the commonly negotiable portions.
Apartment Syndicator · Charleston, SC · Member since 2016 · 973 posts · 728 votes
7y
@Cooper Marcus it's typical that investors share in the losses. In your original question you had the $100k loss and the investor owned 10% of the LLC they would typically get a $10k loss on their k1. In all the multifamily deals my group synidcates we state losses are shared and investors like that because they want to reduce income tax liability. Not every syndicator will share the depreciation loss so make sure you ask and verify in the PPM.