Multifamily Syndication After-Tax Returns for a LP

[Jordan Burnett]

Does anyone have an actual (net after-tax) return breakdown from a multifamily syndication that they have participated in as a Limited Partner?

I'm particularly interested in Limited Partners who would not benefit from QREP status, nor a 1031 exchange.

I know you'd be subject to capital gains tax and depreciation recapture and I'd like to see if someone has an actual example or possibly a link to an actual example.

E.g. projected CoC returns were 8% and realized IRR was 18%, what is the actual after-tax return per annum after holding for 5 years and paying all capital gains and depreciation recapture taxes (or whatever the deal was).

Maybe the equity multiple was listed at 2.1X, but what was your actual after-tax multiple? Just want to see what the actual tax hurdles are for those of us not investing inside of a SD-IRA and not capable of taking advantage of 1031 exchanges or QREP status.

Thanks!

[Arn Cenedella]

@Jordan Burnett

Yours is a good question but there is really no way to answer the question. Other than to say, it depends. Each person has a different financial and tax situation.

Active real estate professionals for example are treated much differently than W2 people. So if you are an active real estate professional like I am, the tax treatment of gains, losses, and income is different than for others.

High level, here is how I would look at it. Everyone pays taxes on every dollar they ever make. That being said, real estate offers certain tax advantages not available to other investments. So high level and in general, the taxes paid on real estate income and gains is almost never more than what you pay on other forms of income. 

I believe in considering investments, looking at before tax returns is the first step. That will be comparing apples to apples. Then you can dive down with your CPA and calculate your PERSONAL AFTER TAX RETURNS of various investments. There is NO one size fits all here. It is individual and specific to each person. Seeing someone else’s after tax analysis will be of little benefit to you or I. I suspect after said analysis, you find 9 times out of 10, you will find, your AFTER TAX return is better with real estate than almost any other investment.

Here is a short list of many of the personal factors that would need to be considered before an after tax return could be calculated:

Does one qualify as an active real estate professional?

Is your spouse a real estate professional?

What is one’s W2 income? What federal and state tax bracket is one in?

Certain tax deductions phase out after a certain income level is reached.

Does one have additional passive income or loss?

Does one have passive loss carry forwards from previous years?

Truth is No One, other than an investor’s own CPA or tax professional should be calculating an investor’s After Tax return. It is just too complicated. 

I know this doesn’t answer your question but hopefully provides a little insight.

This is why an investor always see a disclaimer. “Discuss with your CPA or tax professional”.