All Forum Posts by: Stephanie Cristiano

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?

@Matthew G. I have active investments with them. I am thinking possible delays in distributions, and lack of follow-up if a sponsor is not making payments or fulfilling their duties. I hope it shouldn't impact underlying well performing investments other than delays and innefficencies of passing along money/info.

Any speculation how yesterday's Realty Shares announcement will impact performance of current investments? (They have run out of cash to pre-fund deals, are no longer offering new investments, and are laying off staff). They are allegedly maintaining enough infrastructure and employees to continue managing current investments and to pay investors. But this is clearly worrisome. Thoughts?

@Michael Plaks Thank you all! I might give the software another try. I just didn't like it last time I tried. It only gets tricky by hand when something new comes up for me. And, is there any way to use the software to analyze hypothetical scenarios? That's the real value in doing things by hand for me. I need to know what will happen if I sell this property outright. Not after I sell it and realize I've made a bad decision. Plus I love doing my taxes by hand. It's so fun! I feel so empowered to make good decisions when I understand this numbers game.

Thank you  Linda!  So I think the statement that the suspended losses can offset gains is a little misleading as I read it as the losses directly offsets gains before making their way to the 1040.  My unallowed losses and many others' losses accumulate due to income being 150k, and no allowed losses on 1040 line 17, so this in fact would not work for my scenario (and I imagine in many cases).  So, if we sell, a 1031 exchange would definitely make sense.  But this will lead to another predicament of how to utilize the suspended loss.  This was to be my last property in the "grouping with active participation" on the 8582 worksheet 1, as I'm shifting to all passive (crowdfund) real estate investments grouped in worksheet 3.  But if I don't pickup another property to have active participation and place in worksheet 1, I believe I will lose my suspended loss.  Sigh.

Originally posted by @Linda Weygant:

Your confusion here is that it does not DIRECTLY offset the gains, so you won't see in on the 8949.  It becomes deductible on Schedule E (computed on lines 22 through 26) and then carried over to 1040, line 17.

It becomes deductible against your AGI and other ordinary income (including Depreciation Recapture).  Capital Gains are calculated separately and you could be in a situation where you're still paying the Capital Gains tax, even though your ordinary income and income tax are reduced significantly.

Think about your goals.  Is it cash flow?  If so, you should analyze your current cash flow relative to equity.  Can you make better cash flow elsewhere?  If so, selling (1031) may make sense.   Appreciation is speculative, but cash flow you can estimate fairly precisely by looking at current rental rates.  Obviously there are other factors like risk and using your knowledge to speculate which properties will appreciate more.

Thank you Basit Siddiqi.  Yes the losses have carried over properly on 8582.  I am just wondering how they make their way to offset gains which go on 8949.  If they supposedly offset the gains at the time is a sale, where does that show up?   I do my taxes by hand because I want to make educated decisions.  So, I am running through hypothetical gains on the sale if I decide to sell the property outright.  I understand how the losses are calculated on 8582 and make their way onto Schedule E.  Wondering where they show up to offset the gain or depreciation recapture on a sale.   There has got to be a form / line number if the "offset" is true.  Right now I am thinking maybe the catch-all 8949 column (g) Code O- "You have an adjustment not explained earlier in this column."

Michael Plaks, thank you for taking the time to respond.  I understand the concept.  Just trying to find it on tax forms.  Tax software is not magic.  I used software 10 years ago and got annoyed because I wanted to see the numbers working through the process and calculations, and found myself reading through the calculations and workflow afterwards anyway.  There should be a clear answer as to where this lands on the tax forms.  If investors relied only on software at year-end, they would not be able to make educated decisions prior to that.

And I know, this is why I should have a tax adviser.

I am trying to decide whether to do a 1031 Exchange or to sell an investment property outright.  I have suspended loss carryover associated with the property.  I often see general guidance such as follows:  "If you had suspended losses(losses you couldn't take because your income was above $150,000) then you should be able to utilize those suspended losses to decrease your gain."

On what tax form or worksheet, and what line, do you apply these suspended losses to decrease your gain?  Where is it described in IRS instructions?  I am looking on Schedule D and 8949, Forms and Instructions, and don't see it.

I genuinely enjoy doing my own taxes and self-educating so am hoping to not have to hire a CPA.  I know consulting with a CPA is the "right" answer.  Would love to find the answers myself and think through the scenarios.  I have done 1031 Exchanges before.  It was just the clear answer at that time because I didn't have the suspended losses.

Thanks!