Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
3y
@Marcus Kuhnert, generally speaking, your sale is long-term cap gains and passive, with some depreciation recapture in there. Typically, a syndication investment is also passive, so any share of losses can be used to offset your gains.
I have done this several times over the last several years with the biggest difference being I owned my rentals personally, and invested in syndications personally. Not sure if the multi-member LLC/LP will create a different outcome for you and your group.
@Marcus Kuhnert Can you give us a bit more details? Have you vet out the sponsor and the deal for the syndication?
Yes, for example, we have $100K in capital gains from the sale of one of our properties. We invest that into a syndication where we are considered passive LP investors. With the deductions that get passed thru to us as investors from the syndication OFFSET the initial $100K we had from the sale of our property? The sponsor and type of syndication is irrelevant I would think.
Real Estate Agent · Dallas, TX · Member since 2020 · 164 posts · 80 votes
3y
You want to make sure your capital is protected so I think sponsor and the deal is very important. Did you find a syndication that'll take 1031 money? Most wont.
You want to make sure your capital is protected so I think sponsor and the deal is very important. Did you find a syndication that'll take 1031 money? Most wont.
We would NOT be using a 1031 exchange, because like you said, most syndicators won't accept anything under $500k to 1031 into their deals.
Real Estate Agent · Dallas, TX · Member since 2020 · 164 posts · 80 votes
3y
Ah ok. I assumed 1031 because you mentioned "like-for-like." Cost seg will give 80% accelerated depreciation this year so I guess it depends on the size of the deal for the syndicator.
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
3y
@Marcus Kuhnert, generally speaking, your sale is long-term cap gains and passive, with some depreciation recapture in there. Typically, a syndication investment is also passive, so any share of losses can be used to offset your gains.
I have done this several times over the last several years with the biggest difference being I owned my rentals personally, and invested in syndications personally. Not sure if the multi-member LLC/LP will create a different outcome for you and your group.
Accountant · New York NY, USA · Member since 2023 · 209 posts · 26 votes
3y
It's great that you're consulting with a CPA for specific guidance, as your situation involves various tax implications and strategies. Here are some general considerations regarding the sale of rental properties, capital gains, and investments in syndications:
Characterization of Proceeds from Rental Property Sale:
Proceeds from the sale of rental properties that you've held for longer than one year are generally considered "long-term capital gains." These gains are typically subject to lower tax rates compared to short-term capital gains.
The characterization of these gains as "passive" depends on your level of involvement in managing the rental properties. If you meet the IRS criteria for being a passive investor in the rental properties (e.g., not materially participating in their management), the gains would be considered passive.
Offsetting Capital Gains with Cost Segregation Deductions:
Cost segregation is a strategy used to accelerate depreciation deductions on real property. When you invest in syndications that perform cost segregation on their properties, you can potentially offset your long-term capital gains from the sale of rental properties with depreciation deductions from the syndications.
The key here is that the depreciation deductions from the syndications can offset other passive income, which includes passive rental income and potentially long-term capital gains from real estate investments.
Like-for-Like Gains and Monies:
While the gains from the sale of rental properties and the deductions from cost segregation in syndications are not identical, they are related in the sense that one can potentially offset the tax liability created by the other.
The idea is to use the depreciation deductions from the syndications to reduce your overall taxable income, including the long-term capital gains from the sale of rental properties, thus potentially lowering your tax liability.
Additional Considerations:
Be aware of specific tax rules and regulations that apply to syndications, real estate investments, and depreciation deductions. Tax laws can be complex and subject to change, so it's crucial to work closely with a CPA or tax professional who specializes in real estate and syndication investments.
Ensure that the syndications you invest in are structured in a way that allows you to benefit from the depreciation deductions. Not all syndications may offer this tax advantage.
Remember that tax planning and strategies can vary based on individual circumstances, so it's essential to work with a tax professional who can provide personalized advice tailored to your specific financial situation and investment goals. They can help you optimize your tax position and ensure compliance with tax laws
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
3y
Back in 2018, I sold 7 single-family homes and faced 200k of capital gains. But guess what? I just offset it with 200k of passive losses from diving into syndications.
For those new to the game, the 1031 exchange is basically a way to postpone the taxes on your property's capital gains. The catch? You've got 45 days to pinpoint a replacement property and then 180 days to seal the deal which is really annoying and when you go into a value add syndication you are stuck in the same predicament again.
I'd only recommend a 1031 as a last resort because eventually, you'll have to pay those taxes. The only exception might be if you're planning to take it to the grave and benefit from the step-up basis.
Investor · Dublin, OH · Member since 2014 · 241 posts · 495 votes
3y
I an not a CPA or tax professional, but I agree with @Lane Kawaoka on this issue. I sold five single family homes and three small multifamily properties - all had large gains. Instead of the 1031 Exchange that many people feel obligated to do, I did a "Lazy 1031" and did not pay taxes on the gains from the active investments. I worked closely with my CPA - and it is not an exact science as you won't know if you amassed enough passive loss until after the following tax year, but it definitely worked for me. Good luck!