Depreciation recapture question

[Evan Loader]

I have yet to experience depreciation recapture, since none of the syndications I participate in have exited.

My question is this. I have had paper passive losses on all K-1s filed with no passive gains to offset(I’m a W-2 civilian defense contractor so I can’t offset active W-2 income in my situation since I am not a REP) and I have preserved those losses both on my federal return and the state returns I invest in.

I intend to carry those passive losses forward until I exit on a deal and use those losses to offset part of the gain. I know my basis falls due to the depreciation and those carry forward losses should offset that. Assuming I carry losses forward on a deal until exit will I be able to offset the depreciation recapture portion with those suspended losses I carried forward? My concern is if I didn’t get to experience the benefits of the depreciation I should be able to offset it when I sell. I claimed them on my return but since there was no passive gain to offset they carried forward. The key is to carry them forward via suspended loss on your return in order to use them at exit correct?

I appreciate the insight anyone would have on this.

[Lane Kawaoka]

All investors will have to pay back the depreciation recapture (losses taken throughout the hold) and capital gain (the big payout on the end which is sale minus cost basis). But don't despair because although this is the case when you look at it myopically, in reality most investors go into multiple deals accumulating 100s of thousands of passive activity losses in their first few years investing. Those losses do not go away, but they become suspended to be used to offset future passive income and sales/capital events like this in the future. When you exit a deal, what normally ends up happening (like Tom Brady keep winning more Super Bowls) is that you go into two more deals (with now double the amount of capital) and you will likely find that with those new K1s you could result in you having way more passive losses you began with If you can see where this is going... yes, experienced investors with a lot of capital deployed might have 500k-1M+ suspended passive losses and have not paid taxes in years and do not appear to pay taxes for years! (you can find how much suspended passive losses you currently have on your IRS Form 8582 - which your CPA is likely not giving to you and in that case you should get a new one)

PS - I am not an CPA or attorney but I became financially free doing this for myself after 10 years working as a w2 engineer :( and I am sick and tired of seeing highly educated and hard working professionals getting stuck in the rat race because we deserve financial freedom and the option to do more with it.