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Updated over 4 years ago,

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1
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Offset K-1 capital gains (RE syndication) with passive losses?

Posted

We have large unallowed passive losses carried over on 8582 (from several years cumulatively) from various real estate syndication deals reported to us on K-1s.  For the first time in 2019 a few of those assets have exited resulting in capital gains on K-1s (box 9a), unrecaptured 1250 gain (box 9c) and net section 1231 gain (box 10).  A syndication sponsor previously told me the carried over passive losses should offset gains (regardless of income and passive loss limitations) and that if my accountant couldn't make this work, they weren't doing it correctly and I needed to find an accountant experienced with syndications and this scenario (haven't found one).  However, the K-1 instructions say the gains should go on Schedule D, line 12.  If Schedule D is the correct place for them to go, those schedule D gains appear to go down a different path of being taxed and we can't figure a way for the losses shown on 8582 to offset those Schedule D gains.  If this is the case, the syndications are not actually a good deal for us tax-wise because it seems like we will never reap the benefits of those losses and they artificially inflate the gains showing on the K-1 (probably due to depreciation and recapture).  But, I suspect we're missing something here.  Does anyone know how to work the passive losses to offset the gains?

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