Handling K1 real estate syndication, section 1231 gain, and unrecaptured section 1250 gain

stevenp

To introduce the question, let's assume W2 income = $300k. This makes my marginal tax rate 35% with the 2024 brackets.

If I participate in a real estate syndication by putting in $100,000 where I receive a K1 for 4 years before it dissolves with income in those years of:
Year 1: -$20,000 passive loss
Year 2: -$10,000 passive loss
Year 3: $10,000 distribution (starting to repay that initial investment)
Year 4: $200,000 distribution on the sale of the property and partnership is dissolved

Can those $30k of past passive losses be used against W2 income in Year 4? I've read in a few places online that they become "active" when the final K1 dissolves the partnership.

How is the unrecaptured section 1250 gain treated in this scenario? I saw online that the recapture is capped at 25% which should be advantageous if I can write off the $30k of losses against my 35% marginal tax rate and only pay the 25% recapture rate. Is this accurate?

KristineS

Hi stevenp,

Thanks for joining our Live Event today!

We appreciate your questions, but these are outside the scope of what we can answer since they're both hypothetical in nature and all facts and circumstances matter on a tax return.

Your questions are best answered in a thorough and thoughtful tax planning conversation that include all details relevant to your particular circumstance.

Community members here in this forum are welcome to share their knowledge or expertise.