All Forum Posts by: Cooper Marcus

My original question is extensively discussed in https://www.biggerpockets.com/forums/51/topics/647412-syndication-losses-against-active-income

There are LOTS of Opportunity Zone Funds - see https://www.ncsha.org/resource/opportunity-zone-fund-directory/ and https://www.novoco.com/resource-centers/opportunity-zone-resource-center/opportunity-funds-listing

@Michael Wolffs do you have projects ready to go in Opportunity Zones? If not, I think you'll be in a tough spot raising a fund before you have projects secured. 

I need to maximize my tax losses this year - how should I invest in real estate (or something else?) to generate maximum tax losses?

(Ideally, for every $1 I invest, I'd get $1 in tax losses this year - I don't care much about tax losses in future years, but of course I'd like this investment to eventually generate a positive return :)

Assume that (in a given year) I'm a Real Estate Professional, and I've passed both the 750 hour test for my real estate activity and the 500 hour material participation test for a rental property I own and manage. Assumed this rental property generates tax losses (due to depreciation) - I understand I can deduct these losses from normal W2 income that my wife earns. 

Now, assume that in this year I invest in a syndicated rental property investment (as a non-managing limited partner). Assume that this investment generates tax losses (again due to depreciation) that are reported to me on a K1.

Questions: 

• Can I make the grouping election (IRS Regs. Sec. 1.469-9(g)) and elect to group my rental property and my syndicate investment so that I can deduct the sum of the losses from my wife's W2 income? 
• Is there some reason I would not want to make the grouping election, and would instead want to take only the losses from the rental property I directly own and manage as deductions against W2, while taking the investment losses as normal passive losses?
  • I believe the main reason I'd not want to group is if the timeline for selling the rental property is significantly different than the timeline for the investment syndicate to be wrapped-up - because I can't deduct suspended losses until BOTH the rental property and the investment are disposed of.

(This very comprehensive article by Tony Nitti was helpful for understanding many details of the Real Estate Professional qualification, but after a few careful readings, I'm still left with the questions above)

Thanks @Greg Dickerson that helps!

I come from the tech startup world - in this industry, there are various deal terms (in startup financing agreements and in startup employment agreements) that are considered typical, and when you see them proposed, you tend to skip right past them as you read the agreement - instead, you focus on the "unusual" portions, and the commonly negotiable portions. 

That makes sense @Greg Dickerson and it aligns with what I'd learned - what I'm wondering is what is typical - what sort of allocation would cause an experienced investor to see it and skip right past it as they review the deal? 

How do single-property LLCs (I'm most interested in multi-family, but I'm guessing this answer could apply to any property type) typically allocate tax losses to their partners/investors?

For example, if a given property generates $100k in losses (typically due to depreciation), would those losses typically appear on the partner's K1 forms in proportion to their equity percentage? Thus, an investor that had put up 10% of the equity would see a -$10k loss on their K1?

Or, are other allocations, that aren't strictly related to investor equity, typical?

Where could I read more on this topic? 

@Lauren B. the only way I could imagine you (as you describe your situation and investing approach) might be leaving money on the table is if all of the following were true:

• There is a rental property you can buy in an Opportunity Zone
• You can buy it with capital gains (eg. you sell an appreciated asset, then use the cash to buy the property)
• You then invest additional cash from capital gains into the property at least equal to the prior building value (this is a BIG hurdle - multifamily residential buildings don't warrant this level of rehab investment)
• You plan to hold and operate the property for 10+ years
• You do all of the above under the umbrella of a Qualified Opportunity Zone Fund, which you setup and manage (with the help of a qualified attorney and CPA)

As you are discovering, making all of these things true is not really feasible for you.

Thanks all for your replies, good stuff!

I'm still trying to understand the specific deal structure under which one might secure a project in an OZ and then sell it to an OZ Fund, while maintaining all the benefits of OZ investing.

In the base case, I'd buy a property as an individual or single-property LLC, then get it entitled, then sell it to an OZ Fund - I believe this would work OK, though my entitlement work would likely raise the value of the building, which would then raise the minimum additional investment the OZ Fund would need to make.

Would it be better to setup a OZ Fund (let's assume this step is "free" :), have the fund buy the property and get it entitled, then... this is where I'm not clear - could a larger OZ Fund buy my smaller fund? 

Here is another way of asking my original question: If I believe I can secure and entitle viable development projects in OZs, how should I best structure my acquisition and entitlement process to make these projects optimally attractive to a subsequent acquirer of shovel-ready OZ projects?

A few more Opportunity Zone mapping tools:

• https://www.policymap.com/embedmap_dyn?lqid=378163...
• https://www.enterprisecommunity.org/opportunity360...
• https://go.bakertilly.com/contactbtc0618