Partnership/Tax Question - Needs to show a loss

[Greg Junge]

I'm trying to figure out the following scenario but need your help.  A relative of mine wants to invest 100k in real estate, only if it will show as a loss on his taxes.  He's not a real estate investor but has cash to invest.  He doesn't want to be on the loan, which I'm fine being on the loan solo.

My question is, how do I know or calculate if a property will produce a loss on his taxes based on him just putting in money, not being on the loan, and being a 50-50 partner.  Do I just calculate income - expenses - depreciation? Or am I missing something?

I have rental properties myself but never had a partner, and never one with this request to show a loss specifically.  I always buy for cash flow, not appreciation, but do I have to change my thinking for this scenario?

Any advice would be appreciated, tax or otherwise.

Thanks,
Greg Junge

[Paul Caputo]

I think taking full advantage of depreciation and leverage is going to be your best bet on this. Depreciation deductions are not affected by leverage, you'd have the same deductions whether you paid cash or used 100% financing. So by using leverage you can get more property and in turn more depreciation. 

If you want to supercharge the depreciation you can have a cost segregation study done on the property. Generally you'd see 10%-30% of the property eligible for accelerated depreciation. Out of the qualifying assets you'd be able to pick if you want to do 100% bonus depreciation, 50% bonus depreciation or just use the regular 5 year or 15 year schedules. We're regularly able to help clients show a loss with accelerated depreciation. 

Obviously it's a good idea to talk to a CPA who knows real estate, but this shouldn't be too difficult to get done. As you said most of your rentals show a loss, but you get good cash flow. Do the same thing. 

I'm not a CPA, this is not tax or legal advice.