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Income for funds/syndications?

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  • Income for funds/syndications?

    Hello all:

    I hvae traditionally been a public equities / fixed income investor - very boglehead philosophically; I have recently considered altering my financial plan to start introducing real estate in the form of syndications and funds. This is to offer more diversity in my portfolio. I am looking specifically at investing in multifamily investing.
    I am still in the learning phase, so bear with me.
    My question is: when investing in these type of multifamily syndications or funds, is there any taxable income?
    The reason I ask is that, when I retire (at least 10 years down the road), I will have a tax deferred plan from my work that I will need to roll over into a traditional IRA. My plan is to take a portion of that starting at 59.5 years old and convert to my Roth IRA each year - filling up the low tax brackets in retirement, until age 70.5, to minimize the RMD. However, if RE funds / syndications in those retirement years produce income, my concern is that it would thwart my plan by having that income fill up the lower tax brackets upon my retirement.
    Again, I am still in the learning phase of adding RE fund/syndication investing into my portfolio. TIA!!

  • #2
    I think you need to speak to your accountant since I am not an accountant.
    But, your income from a syndication can be reduced via the depreciation/cost segregation's that can be done on the property so your income will be reduced. There are some syndications that I have looked at that do not give distributions until everything is sold so you will have to read the PPM closely. But in general, distributions will probably count as income and affect your plan on converting to Roth IRA.


    • #3
      It depends on your situation and the firm you invest with. It will also depend on if they sell an asset and create capital gains. We typically run our investments with cost segregation, so even though investors get a distribution, typically the investor shows no gain on paper to the IRS. Of course, if the asset is sold and the group doesn't 1031 Exchange into another asset, you will show a large gain that year. Talk to your CPA and also to the sponsor that you are investing with.


      • #4
        As others have said the income is generally offset with paper losses from depreciation so it shouldn't significantly impact your ability to convert to Roths. FYI with the law change you don't have to take RMDs until 72.


        • #5
          It depends. The monthly or quarterly distributions should absolutely be tax free or nearly tax free due to depreciation and forced depreciation from cost seg studies. If the property has an appreciation event at the conclusion of the hold, that WOULD be taxed. Of course your option there is 1031x into another property to avoid those taxes.
          Real Estate Investment Advisor