Do you agree with this approach?
Not at all. My initial impression is that you're conversing with a CPA whose primary goal is to make things more complicated so you will "require" their services. But that's just me.
Doing it the CPA's way has a much higher potential of creating complications if/when something in the partnership changes - such as taking on a new partner, or losing a partner. Especially when it comes to depreciation.
Keep it simple, and "ALL" information concerning the rental is reported on the partnership return. Yes, that includes depreciation. Things will be split between the K-1's based on each partner's percentage. Each partner's percentage of depreciation is on line 16a of their respective K-1. Therefore, assuming there's a mortgage on the property I would expect all partner's to show a loss on their K-1 every single year. Let me explain why I expect that.
When you add up the deductible expenses of Mortgage Interest, property insurance, property taxes, and add to that depreciation you are required to take, the total of those four deductions alone are usually more than the total rental income received for the year. So the partnership will show a loss. Add to that the other allowed rental deductions such as maintenance, repairs, etc., and you're almost certain to show a loss.
When your rental losses get your taxable rental income to zero, that's usually it. However, a few years ago tax law was changed. If your AGI is under a certain threshold, then up to a maximum of $25K can be deducted from your "other" ordinary income. Anything after that gets carried forward.
In my own experience with my three rentals, it only took me about 3 years to "use up" my carry overs that had accumulated in the past, with the ability to deduct up to $25K of those losses from my other ordinary income. So I would imagine in a partnership, it's perfectly possible those deductions that exceed the rental income would further reduce your "other" ordinary taxable income. That would mean it's also possible you would have no carry over amount to carry over to the next tax year.
There's pro's and con's to the $25K maximum against other ordinary income. But for the most part, it seems to all "work out in the wash" when all is said and done.
