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Every year I designate myself as a "real estate professional" (I meet all the criteria) for tax purposes.
I received a K-1 from a multifamily syndication that I am a limited partner. It shows a large loss on line 2 (net rental real estate income or loss) because of the huge depreciation amounts done legally with a cost segregation study.
I do not materially participate in this business, so I answer "No" when TurboTax asks me if I did.
As a result, I cannot offset my rental income from my other properties with this loss. So the loss accumulates on form 8582, to be used in future years.
My question is: Can I answer "Yes" to that question?
My thought process is: since I am a RE Professional, it doesn't matter if I actively participated or not.
Answering "Yes" results in substantial tax savings 🙂
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You cannot simply answer "yes" because you are a real estate professional. It's more complicated than that. You may be able to answer yes. See the following information from "The Tax Advisor":
To see the entire article, click on "Navigating the Real Estate Professional Rules"
David, thanks for the information.
I meet the Real Estate Professional guidelines, there is no doubt about that.
The referenced article is super complex and confusing.
Will a CPA be able to understand it and be able to tell me for sure if I can "elect to aggregate all of my interests in rental real estate for purposes of determining material participation"?
Understand that depending on how you do it, when you aggregate your real estate activities, your suspended losses are not released until you have sold or otherwise disposed of all of those activities included in that aggregate. So be wary and careful. Make absolutely certain you are getting the results you desire.
@ghettodawg wrote:Answering "Yes" results in substantial tax savings 🙂
Yes, it would result in substantial tax savings but would also expose you to unlimited liability.
Limited partners who materially participate are treated similarly to general partners; you could become liable for the debts and actions of the partnership and other partners.
Regardless, meeting one of the material participation criteria would be next to impossible as a limited partner in an MLP.
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