Underwriting treatment of passive losses from a syndication

[Will Dixon]

I am currently going through underwriting for the first time. I was able to meet the income qualifications for the loan I am seeking, but found it very odd how underwriting treats passive losses for income qualification purposes. I was wondering if someone familiar with the process could shed some light on this.

I am an LP in a syndication that began in 2019. I reported a loss on my tax return of -$4,116 from the investment. I would venture to say the investment was cash flow positive, but the loss cals from accelerated depreciation taken in the first year as a result of a cost segregation. The investment itself is distributing 13% CoC annually. On my loan paperwork, it lists other income/loss of -$343/mo (-$4,116/12).

This totally contradicts how my own rental property was treated for income qualifications. NOI of -$49k was adjusted to $46k by adding back depreciation, taxes, interest, and insurance. $6,600/mo of income qualification based on 7 months of occupancy.

Why are these rental activities treated so differently for underwriting purposes? Are there any ways to provide support to an underwriter to either disregard a passive loss from a syndication or maybe treat it as a positive value if you could provide support from the partnership tax return? I understand distributions is a gray area to treat as a cash flow since they could just be returning your initial investment.

Are the government regulations being painted with too broad of a brush stroke?

TIA