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  • 1.  POSSIBLE CLIENT INVESTMENT

    Silver Most Valuable Member
    Posted 02-26-2023 10:19 AM
    A client came to me with a proposed investment for himself from a friend. He is a commercial real estate agent.  I told him it was not as tax beneficial as he was led to believe.  I am hoping someone out there will either correct me or tell me I am spot on.

    He puts $50K into a venture that leases rental space.  He would be a limited partner.  Due to accelerated depreciation, he will get a deduction in year 1 of $125,000.  At a 40% tax bracket, he will recoup his entire investment in the first year.

    The 2 issues I raised were 1) he has no passive income and will simply carry forward the passive loss until he has passive income or disposes of the investment and 2) he couldn't deduct more than the $50K to due a basis limitation.

    When he goes back to the "friend" with my concerns, he is told by the venture's CPA that as a real estate professional (REP) there would be no passive loss limitation.  He didn't address the basis issue.

    My concern with the REP designation is whether it would apply to a limited partner  investment where he doesn't materially participate. Also, his real estate income is reported on a Schedule C.  Can a Schedule C be grouped in any way with a limited partner K-1 showing rental loss.  His ownership in the LP would be less than 5%.

    The basis is a secondary issue at this time and seems to be the nail in the coffin for this investment, should we get past the first issue.  

    Thanks.

    --
    Larry Prosky CPA
    Prosky & Rosenfeld LLP CPAs
    1025 Old Country Road
    Suite 403 W
    Westbury, NY 11590
    Direct: 516-873-9600 x1
    Fax: 516-873-9602
    Cell (Text) 516-661-6020
    Other: 516-785-5658
    e-mail: larry@prcpallp.com


    Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.  If desired, Prosky & Rosenfeld LLP CPAs would be pleased to perform the required research and provide you with a detailed written analysis.  Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.  

    Privileged and confidential-this communication and any accompanying documents are confidential and privileged.  They are  intended for the sole use of the addressee.  If you receive this transmission in error, you are advised that any disclosure, copying, distribution or the taking of any action in reliance upon this communication is strictly prohibited.  Moreover, any such disclosure shall not compromise or waive the accountant-client, or other privileges, as to this communication or otherwise.  If you have received this communication in error, please contact me at the above e-mail address.  Thank you.
     


  • 2.  RE: POSSIBLE CLIENT INVESTMENT

    Platinum Most Valuable Member
    Posted 02-26-2023 11:15 AM

    Hi Larry

     

    I think you are spot on....

    REP or not, there is no basis for those kind of losses as was presented to him.

    His real estate job would give him the hours in the field of real estate for the REP classification.

     

    I too have concerns  about the limited partnership interest, but I would  be bold enough to guess , yes it would qualify

    For the IRS's position is being protected by the At Risk  provisions, so why not.

     

     

    But that is only MHO.  I'd be very interested in hearing other  views.

     

     

     

    Abby Alhante,  CPA

     

    Kurcias  & Alhante, LLC  CPAs

    525 Broadhollow Road   Suite 104

    Melville NY  11747

    516.829-5890  Ext  2   Fax 516-829-3976

    Mobile 516-381-9301

    AbbyA@KurciasAlhanteCPAs.com

    ( E mail response preferred )

     

     




    Original Message


  • 3.  RE: POSSIBLE CLIENT INVESTMENT

    Silver Most Valuable Member
    Posted 02-27-2023 09:08 AM
    I am looking over an article in THE TAX ADVISOR dated 7/1/14.  See the link.  


    In this article, it states that a rental real estate activity of a taxpayer who qualifies as a REP is not per se passive, but the taxpayer must still materially participate in the activity for it to be treated as nonpassive.

    They go on to say that it is a 2-prong test.  
    1. establish that they are a REP to avoid the general rule.
    2. establish that they materially participate in the real estate activity.

    As a limited partner, with no involvement beyond their initial investment, does your opinion change?

    --
    Larry Prosky CPA
    Prosky & Rosenfeld LLP CPAs
    1025 Old Country Road
    Suite 403 W
    Westbury, NY 11590
    Direct: 516-873-9600 x1
    Fax: 516-873-9602
    Cell (Text) 516-661-6020
    Other: 516-785-5658
    e-mail: larry@prcpallp.com


    Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.  If desired, Prosky & Rosenfeld LLP CPAs would be pleased to perform the required research and provide you with a detailed written analysis.  Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.  

    Privileged and confidential-this communication and any accompanying documents are confidential and privileged.  They are  intended for the sole use of the addressee.  If you receive this transmission in error, you are advised that any disclosure, copying, distribution or the taking of any action in reliance upon this communication is strictly prohibited.  Moreover, any such disclosure shall not compromise or waive the accountant-client, or other privileges, as to this communication or otherwise.  If you have received this communication in error, please contact me at the above e-mail address.  Thank you.
     



    Original Message


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The opinions expressed are the views of the author alone and should not be attributed to any other individual or entity and shall not constitute an accounting opinion.