In this segment of the Real Estate Syndication Show, we discussed tax intricacies with Kelsey Head, a tax expert at Head Tiler LLP. Drawing on 19 years of experience, Kelsey shared insights into passive investments, especially in real estate syndication.
Key Insights:
- Passive Loss Limitations: Kelsey clarified a misconception among new investors. The IRS allows collecting passive income without restrictions. However, passive losses can only offset passive income, not active income like job wages.
- Depreciation and Passive Investments: Despite initial depreciation allure, Kelsey noted that without additional passive income, these losses don’t yield immediate tax benefits. Instead, they carry forward to offset future gains from property sales.
- Active Participation Requirements: Achieving active status in an investment requires contributing 500 hours of work to a single activity. Limited partners in syndication deals are unlikely to meet this level of involvement.
- Offsetting Gains with Carried Forward Losses: Upon property sale and gain realization, carried forward passive losses can be used to offset gains, reducing potential tax liability.
- Investment Timing and Strategy: Kelsey recommended a strategic approach to investment timing, especially with the bonus depreciation phase-down from 100% in 2022 to 80% in 2023, further decreasing in subsequent years.
This episode illuminated passive investment taxation complexities, emphasizing the importance of understanding IRS regulations and planning accordingly. Kelsey’s expertise highlighted the need for investors to manage expectations regarding immediate tax benefits and consider a long-term investment strategy to optimize tax advantages.
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About Kelsey Head:
As a partner at Head Tyler LLP, a firm she founded in 2020 amid the COVID pandemic after leaving a large firm where she also held a partner position, Kelsey Head brings almost 18 years of tax experience and CPA expertise to her role. With a wealth of knowledge, she establishes herself as a trusted expert in the field. Committed to providing clients with valuable insights and guidance, Kelsey’s extensive tax background defines her as a reliable professional.
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