Open Door Capital and K1 Investment losses

[Matt Pulkrabek]

My question is regarding passive real estate losses. I am a real agent and investor, therefore I am considered a "real estate professional" for tax purposes. With that being said, my accountant has always allowed me to offset income with losses from investment properties. I recently had a conversation with my accountant regarding investing in Open Door Capital. ODC typically does cost segregation on their Funds, which accelerates depreciation up to 40% of the asset purchase price in the first year. My accountant is unsure whether I could use the ODC K1 losses to offset income because I am considered a limited partner and not an active owner. Any advice would be appreciated.

[Michael Plaks]

Originally posted by @Ben Leybovich:

Originally posted by @Matt Pulkrabek:

Unfortunately, this is how my accountant was leaning as well. I was hoping there might be RE accountant who could clarify.

Also unfortunately, there're the usual suspects among BP syndicators who jump on every post mentioning K1s/syndications with their misleading assertions that K1 losses, including cost segregation, are deductible by passive partners. (No, I'm not talking about you, @Ben Leybovich, your comments are solid.)  

The shortest possible summary of this very complex topic is:

1. The syndicators themselves usually can deduct all losses from the syndications they run
2. Their passive partners usually canNOT deduct theirs
3. Some strategies exist that may allow passive K1 investors utilize their losses efficiently; it's case by case
4. Qualifying for REP status does NOT automatically unlock K-1 losses from syndications, but in some cases it might

Beyond that, all conversations should be one-on-one. It is possible that you can benefit from the aggregation election mentioned on this thread. It is also possible that it won't work in your specific case. This is not simple and not universal, despite what some people said on this thread.

You may also want to look at some of my longer posts on this subject:

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...