All Forum Posts by: Kurt Granroth

Yeah, I've gone the "commodity" tax preparation route and the DIY route until neither could handle the complexity of the K-1s. I then went with CPAs thinking that any accountant could handle K-1s. That is emphatically not true, as I ruefully discovered.

I recently was discussing this thread with my wife and she informed me that I am absolutely being penny wise and pound foolish. When your tax bill is in the six figure territory, then quibbling about a $thousand or two (or three) for an experienced tax pro is going to be chump chance compared to how much we can lose when they are done incorrectly.

And since you are the only person that gave an actual referral, I will absolutely be reaching out to True Books and we'll see where that goes.

Thanks again! 

Quote from @Aaron Zimmerman:

There are a lot of great CPAs in the forums. I'd recommend the tax pros finder on here or reaching out to people at your local meetups. 

Hi Aaron,

Alas, I haven't had great luck when I'm the one reaching out, hence why I'm hoping for referrals from people who have actively used a person or service. And yeah, local meetups could be handy... but that's not really my speed.

Quote from @Mason Weiss:

Have you used True Books? They helped me with my K-1 this year. It would be online as they are based out of Colorado.

 Thanks, Mason. True Books looks exactly like the other RE-focused tax firms that are so prevalent here on BP. I reached out to a few before and what they all have in common is a drive to upsell their "strategy" and "planning" services... but there is no strategy involved when you are strictly W-2 + 100% Passive as I am. It's just a matter of entering in the right values in the right fields.

That's why I'm looking for local referrals -- my hope is that I can find some experienced someone that can just prepare my taxes with no goals beyond that.

(And I was hoping for notably less than the $2,000 - $6,500 range they specify. I may have a wrong "anchor point" for tax prep which maybe is why I keep getting CPAs that don't really know what they are doing... but I am still hoping for closer to $1,000)

I am looking for a Phoenix-metro area (East Valley preferred) CPA or Tax Professional with extensive experience with passive investing and apartment syndications in particular.They absolutely need to know how to read the K-1 notes and immediately know what they mean and how to act on them. And hopefully they won't make mistakes that would cost me thousands of dollars.

I would honestly prefer an online experience but I've tried that the past number of years and that hasn't worked out great for me, so local it is!

I don't really care between CPA or Tax Pro but they absolutely need to have years of experience with passive investing specifically. I was told previously that any CPA should be able to handle K-1s with no problems but the last three years has shown that that is emphatically not true!

Any referrals?

Quote from @Michael Plaks:

@Kurt Granroth

Maybe these posts will help:

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...

Thanks, Michael. Your posts are among the best at describing the subtleties of syndication tax benefits (compared to the hyperbole typically touted). My case here is super specific, though, so the truest sentence of the above in play here is: "[t]axes, especially in real estate, are so ridiculously complicated that your mileage will almost always vary". Indeed.

The GP would be of little help, since this is a question of how the IRS would interpret the results and few GPs are tax professionals.

In short, when a property sells, there are multiple lines on the K-1 that can contain the sale amount and the line chosen has a very large impact on where the value goes on the various IRS forms. In this case, the chosen line was apparently unusual enough that TurboTax and a CPA disagreed where the value goes and what it means, but neither could fully justify why. The difference meant that either the sale proceeds were passive gains and could be offset by my accumulated passive losses or they where regular capital gains and couldn't be (and result in $12,000 more in taxes). TurboTax insisted it was the former; CPA the latter.

I'm looking for a tax wonk (CPA or tax pro), of sorts, that can satisfactorily explain a possibly esoteric tax situation to me.

I am an LP on multiple syndications and one such syndication sold in 2021. The K-1 was odd enough to confuse both TurboTax and a CPA. That is, my first round with the taxes was with TurboTax and while it seemed confident about the choices it made, I wasn't satisfied with its explanations. My goal with taxes is that even if I'm not doing them by hand, I still want to understand every choice on each line ("why is that value on that line?"). Since I couldn't get that clarity with TurboTax, I found a CPA with "extensive passive investing experience" through Picnic Tax. His interpretation of how to apply the K-1 was wildly different than TurboTax's... to the tune of some $12,000 more in taxes!

Unfortunately, I didn't get satisfactory answers from him, either. We went back and forth trading IRS publications but in the end, he cut me off saying that it was taking up too much of his time and he considered his services rendered appropriate for the price I paid. Maybe. I did think that if he understood that part of the IRS code better then it wouldn't have taken so long and he would have been able to convince me.

I paid the extra $12,000 (plus interest; got the penalties waived since it was my first time) just to be on the safe side. I'm still not convinced that it was correct, though.

I am willing to pay a CPA or tax professional with extensive experience with syndications in particular (not K-1s in general) to review already-submitted taxes (at least the specific part in contention) and prove to me what the right strategy is, backed up with the unambiguous lines from the supporting IRS docs.

If that goes well, then I will want my 2022 taxes finalized, too, but that's secondary to first knowing that there is one correct way to do the 2021 taxes and convincing me of that!

Any recommendations for such a person or firm?

Okay, excellent.  Given that, I can say that my passive income in the example is $40,000 ($5,000 from 9c and $35,000 from 11i).

Say I also have passive losses from other investments that are a mix of carryover and current. Can I use the entire $40,000 in Form 8582 Part V (a) when calculating the overall passive gain or loss or is there a difference in the type of passive income in this case that means that only one of the sources can have passive losses apply? Put another way, is there a reason why only  the 9c $5,000 may be used in calculating the allowed passive gains/losses on Form 8582?

Let's say I'm an LP on an real estate syndication LLC that sold its sole property last year, although the LLC itself has not yet dissolved (e.g., this does not warrant a "Final K-1"). I am not a Real Estate Professional and my involvement in this is entirely passive.

The K-1 in this example shows an "Unrecaptured section 1250 gain" on line 9c of $5,000 and subsequently the same for line 10 "Net section 1231 gain". By all accounts, this is passive income according to bothTurboTax and my CPA.

Next up is the "Other income" in line 11i (roughly the proceeds from the sale) of $35,000. There is a note stressing that this is "fully attributable to the sale of business assets" and as a result "is non-portfolio long-term capital gain". In this specific case, is the 11i income of $35,000 passive or not?

This is an example, but it's based on a real K-1. If I enter all this info into TurboTax, then it insists that the 11i income is passive. My CPA disagrees.

The classification of this matters quite a bit since if it's passive, then I can apply my extensive passive losses from other investments to defray it. If it is not, then I pay an addition $12k in taxes.

Let me know if this is not knowable with the info I provided.

Quote from @Jacob Rosenkranz:

I am currently setting aside cash in a savings account, with the rest of the required capital likely coming in the form of a margin loan from my taxable brokerage account so that I don't have to sell the stocks. What are you currently doing? I see this was posted several years ago. 

I've ended up mostly just keeping the "pending" cash in a saving account. My original question was hinged on the idea that the money would be sitting for a good amount of time and thus not earning on it would be noticeable... but as it's turned out, I have a big enough pipeline of potential deals that the cash isn't sitting for long enough to make an appreciable difference. And I realize that I like the flexibility of having purely liquid cash. That definitely helped when I invested in one deal the last week of 2021 -- if it was in stocks, there would have been no way of funding the account until after the new year and I would have missed out on 2021's passive losses.