MultiFamily Refinance Tax and Fee Implications

[Jung Won Kim]

Hypothetically, if a GP were to refinance and return let's say 50% of the initial investment to the LPs. Is that money taxed for the LPs? I would think not since it is returning a portion of their initial capital, but not sure how the IRS would view it.

In addition, once the GP refinances the 50% of initial investment of the LPs, I believe the GP would usually charge a refinance fee. If the GP and LPs agree to use that 50% returned money to do a 1031 exchange, is it common for the GP to charge another acquisition fee on top of the refinance fee?

In regards to my first question about whether the refinanced money is taxed for the LPs, that's assuming there is NO 1031 exchange.