Tax Deductions in Syndications

[Bo Goebel]

If you buy into a large syndication, are you offered all applicable tax deductions in a prorated way? E.g. you invest $10,000 into an apartment complex that cost 5 mil. You have 1% equity on the property. Are you going to receive 1% if the tax deduction? Thanks.

[Mitch Provost]

@Bo Goebel, yes that's how it works. Each year after your syndicator's CPA completes the tax return for the property, he will issue you an IRS Form 1065 Schedule K1 which will include your capital contributed in equity (your investments amount) and your net profit/loss based on all property tax deductions. This would be used for filing your taxes. The profit/loss is your prorated share of the total property profit/loss after deductions that is reported to the IRS by the property GP and would be used for your own tax return.

Normally, a loss is reported due to depreciation and expenses in the first few years, in which case you would owe no taxes on any cash return you earned for that year from the property.

Your tax adviser/CPA can give you better details for your unique tax situation (note that I'm not a CPA).