Tax Issues of Real Estate Syndications: Limited and General Partner Considerations, Carried Interest, and 163(j) Interest Limitations

A flow-through entity that allocates over 35 percent of its losses in a tax year to limited investors is considered a syndicate. Being a syndicate precludes the classification of the entity as a "small business" under IRS guidelines. Due to this classification, syndications are subject to Section 163(j) interest limitations.

Real estate syndication allows individual investors to buy a fractional share of a significant real estate investment. A limited partner does not need to find the property, arrange financing, or participate in the day-to-day management of the property. At the same time a limited partner can reap the rewards of owning a piece of a large potentially lucrative investment. Aside from the benefits offered to partners, some caveats must be weighed and general partners have their own tax considerations as well. General partners typically receive fee(s) related to the purchase, development, refinance, and/or disposition of the property that are subject to self-employment tax.

Listen as our panel of real estate experts explains the tax advantages and disadvantages of real estate syndication for flow-through entities and their investors. Understanding the benefits and caveats of this classification is critical for tax practitioners working with real estate partnerships.

1. What is a real estate syndicate?
2. Tax issues for general partners
   1. Fees and self-employment tax
   2. Carried interest
3. Tax issues for limited partners
4. Section 163(j) interest limitataion
5. Other considerations

The panel will cover these and other critical issues:

• How limited partners are taxed in real estate syndicates
• Taxation of carried interest earned by the general partner
• Calculating the 163(j) business interest expense limitation
• Self-employment tax and other considerations for general partners of a real estate syndicate

Learning Objectives

After completing this course, you will be able to:

• Identify partnerships that are real estate syndicates
• Determine tax effect of income to general partners of real estate syndicates
• Calculate how tax syndicate classification affects the 163(j) interest deduction
• Ascertain differences between the taxation of limited and general partners investing in real estate syndicates

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and their respective partners and shareholders.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).