All Forum Posts by: Tushar P.

Perhaps you could have underlined the words “until the property is sold” and added a fine print that when the property is eventually sold the taxes due will be more than the taxes saved because depreciation recapture is taxed at a higher rate than long term capital gains rate 😏

Here is a an example of someone paying thousands of dollars in tax preparation each year in order to record the paper losses noted in K-1.

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

My guess is paper losses were significant because the GP did cost seg to solely benefit themselves and the middlemen - most LPs are busy professionals, not real estate professionals, hence cost seg doesn’t benefit them but their money is nevertheless used by the GP for GP’s tax benefit. If these significant losses are not recorded in LP’s tax return then upon exit (when the property is sold) the LPs will pay more taxes than due because depreciation recapture will apply even if losses were not recorded in prior years’ tax return. And if the losses were recorded and used/captured during the hold period then the LPs will still pay more taxes than saved because depreciation recapture is taxed at a higher rate than long term capital gains rate.

I don’t think real estate investing offers any unique tax benefits (except for people with REP status who are slogging their a$$es harder than W2 employees, which doesn’t necessarily mean they are earning more), though it definitely offers some unique tax disadvantages. But highlighting those will be conflict of interest for many on biggerpockets 😉

Interest free loan, really? How does the money within the insurance policy continue to grow - can it be invested in anything desired? I haven’t looked into insurance policies as an investment vehicle because I’ve heard it’s not a good strategy.

I think borrowing from 401k/IRA is done by people who are really desperate or are gullible enough to be sold on that, because the interest paid to the 401k/IRA is by the person themselves (i.e. the interest income is not new money). Besides the fact that money doesn't continue to grow within the 401k/IRA because it has been taken out of the 401k/IRA. Unlike margin loans in brokerage accounts (right now can borrow at 1.6% interest rate for balances over 5 mm$) where the borrowed money is deployed in investments outside the brokerage account and continues to grow within the brokerage account too (e.g. invested in index funds) because they were not really pulled out of the brokerage account.

Don’t even have to be a dishonest GP/syndicator to claim that. Anyone who owns just a single share of a diversified reit can claim they own tens of thousands of properties 😏

This is a very common strategy used by high net worth individuals, mainly to benefit via interest rate arbitrage. For example, someone with 2 mm$ in a brokerage account could take a loan of 1mm$ to buy a house worth 1 mm$ - this would mean zero down payment. The financial institution who has custody of the brokerage account will be the one providing the loan, and the interest rate could be 1.5-2.5% for a 10 yr loan period. The risks are that the brokerage account could yield less than the loan interest rate, or the market could crash bringing the brokerage account balance to less than 1 mm$, or the financial institution calling in the loan before the 10 year loan period. All these risks have very low probabilities though. This is done by people who don’t need the money in brokerage account, don’t want to liquidate the stocks/index funds, have enough to buy the property with cash if they wanted, but want to benefit via interest rate arbitrage.

The brokerage firm may not offer the loan to someone with a small amount in their brokerage account, or may offer a loan with an interest rate much higher than the market rate.

I wish it was that easy. Just do a search on the forums (or Google) and you will find out that there are lots of fine print details associated with your description. Basically if you (and your spouse) have a W-2 job then you can forget about it.

 Lockdown started in March last year, not September. And no foresight was needed to get ~80% return with zero effort in less than 2 years - the stock market had a massive drop, pandemic is obviously temporary, and the govt was debating about how many trillions they should print. It was a no brainer. And ~80% is average. The return is 10x higher if a stock was cherry picked like the syndication.

Anyways, both real estate and stocks are passive investments for me - based on the market cycle, I can choose whether to invest in both, one, or none. By the way, I don’t see anything wrong with 12.5% return, and congrats on getting 80% return.

Syndication is not REIT, hence the distribution during the hold period may be treated as qualified dividend. In any case, the capital gains at exit are the biggest chunk of the earnings, and the "keep investing" part to avoid taxes is what Uncle Scam wants. That's when people will lock in the depreciation recapture rate instead of long term capital gains rate. And to avoid paying more taxes than saved at exit, they may invest in whatever deal comes along (just like how 1031X investors overpay to defer taxes). That may come with the risk of total capital loss, because the investor is desperate to invest in anything that promises cost seg in year 1. The investor may indeed end up paying lower/no taxes, because the best way to pay low/no taxes is to earn no/little money. Though one person's loss is another person's income, so Uncle Scam will get his money no matter what, as long as the investor keeps investing instead of taking the gain 😉

80% roi over 5 years (as per original plan) equates to 12.5% annual return, which is quite standard. Also, the stock market has yielded 80% return since the start of the lockdown last year, with zero effort. And that’s average, I’m not even cherry picking any stock.

If I have to put effort then I would want more than what can be had with zero effort. I will switch to investing in syndications when the stock market becomes overpriced and offers lower profit.

Yes, exactly the same. The only way to avoid depreciation recapture is to keep reinvesting (which comes with the risk of total capital loss). The long explanation above conveniently skipped the fact that the taxes due on $35k at exit will be higher than the taxes paid on the $35k over the 5 years if the amount was not offset by depreciation loss.

It’s ironical that the only way to realize the gains without paying taxes is to die. Or be ready to pay more taxes than saved. I simply focus on increasing income rather than trying the impossible task to outsmart Uncle Scam 😏

In any case, my reason for investing in real estate syndications is mainly diversification.

Here are some tax benefits to consider:

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