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Limited partner investors have limited options when it comes to taxes. Here at Hall CPA, PLLC, we get approached by a lot of these folks who are looking to save money on taxes by implementing tax planning strategies. This article will break down the opportunities available to purely limited partner investors, and which of our services make the most sense for you.
Definition: Limited Partner Real Estate Investor
Limited partner investors, in this context, means someone who is investing in a syndicate or fund as a limited partner (or a non-managing member, if it’s an LLC). If you are getting a limited partnership interest in a syndicate or fund, and don’t own properties directly yourself, then we’re talking to you.
- You don’t want to get hands-on
- You don’t want to go out and find/buy properties yourself
- You don’t want to be involved in managing properties
What Tax Options do LP Investors Have?
If you are strictly an LP investor, you have limited options when it comes to tax planning. Those are the facts. Most of the ways to reduce W-2 income and other tax strategies we recommend to real estate investors require you to be actively involved.
Investing passively as a limited partner in real estate is a great way to see a return on you’re capital. However, when it comes to saving money on your taxes, you definitely don’t get max benefits by being a limited partner.
That said, you landed here because you are curious about tax planning for LP investments, and here’s how that would go.
A real estate CPA (or any CPA) will probably ask three things:
- When you made the investment
- How much you invested
- When you expect to liquidate the investment (i.e. when the sponsor plans to sell the property)
From there, a CPA would review your most recent tax returns and operating agreements to determine the timing of the losses you’re going to have from your investments. These are little bits of info that provide everything a CPA needs to give you very basic advice. You only really need a deeper conversation around the time the sponsor plans to sell the property.
How Selling Real Estate Impacts Taxes for LP Investors
So, based on all of that info, the most important conversation you have with a CPA is around the time the sponsor plans to sell your investment property. It becomes a timing calculation of the amount of losses that will be available to you at the time of sale, which will help offset the gains - or if you need to invest in additional properties to offset gains when a property is sold.
This doesn’t really require comprehensive tax planning services, for instance, what we offer in our Real Estate Advisory Services. Because we get a lot of LPs asking about tax advisory from RECPA, let’s clear that question up:
Real Estate Advisory for Limited Partner Investors?
Our Real Estate Advisory services provide active real estate investors with long-term tax planning and in-depth, custom strategies to save money on taxes. Real estate is well-known as one of the most effective ways to save on taxes, but most of the highest impact options are only available to active real estate investors.
Because of that, we would typically discourage anyone who is solely a limited partner real estate investor from contracting with us for comprehensive advisory services. With the limited strategies available to you, investment in advisory services may not yield as much useful guidance or meaningful tactics, simply because you have limited options to begin with.
Instead: Sign Up for Tax Smart Investors for LP Investors
Becoming savvier about taxes for real estate investment is 100% the right thing to do. For that, we’d recommend a much lower investment by signing up for Tax Smart Investors™. This is another tax planning service we offer to real estate investors, and includes a ton of training, tips, practical tools, live Q&A sessions, and more to uplevel your real estate investing game.
When you sign up for a TSI subscription, you can request a one-time meeting with a consultant, which should give you all of the accelerant you need to get started and ensure you’re maximizing savings and on the right track.
You can learn more about Tax Smart Investors™ here.