WS1908 Who Can Actually Deduct Real Estate Losses? | Kelsey Head

In today's episode of the Real Estate Syndication Show, we had the pleasure of speaking with Kelsey Head, a seasoned tax expert and partner at Head Tiler LLP. Kelsey brought her 19 years of tax experience to the table, providing invaluable insights into the tax nuances of passive investments, particularly in real estate syndication.

Key Takeaways:

• Passive Loss Limitations: Kelsey clarified a common misconception among new investors regarding passive losses. The IRS allows the collection of passive income without concern, but passive losses can only be deducted against passive income, not active income like wages from a job.
• Depreciation and Passive Investments: Many investors are enticed by the promise of significant depreciation in the first year of investment. However, Kelsey pointed out that unless you have other passive income, these losses don't provide an immediate tax benefit. They are not lost but carried forward to offset future gains from the sale of the property.
• Active Participation Requirements: To be considered active in an investment, one would need to contribute at least 500 hours of work to a single activity. For limited partners in a syndication deal, achieving this level of involvement is highly unlikely.
• Offsetting Gains with Carried Forward Losses: When a property is sold, and a gain is realized, the passive losses that have been carried forward can be used to offset this gain, reducing the potential tax burden.
• Investment Timing and Strategy: Kelsey suggested that investors might need to be more strategic with their investment timing, especially with the phase-down of bonus depreciation from 100% in 2022 to 80% in 2023 and further reducing in subsequent years.

This episode shed light on the intricacies of passive investment taxation, emphasizing the importance of understanding the IRS rules and planning accordingly. Kelsey's expertise highlighted the need for investors to manage their expectations regarding immediate tax benefits and to consider their long-term investment strategy for optimizing tax advantages.

Remember to like, subscribe, and share the Real Estate Syndication Show with friends who could benefit from these insights into real estate investing and taxation.

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