The fact that it’s a fund (or individual deal syndication) doesn’t prevent you from enjoying depreciation benefits…
Unfortunately, it does. You have to be a direct owner to have the tax benefits of depreciation.
There’s nothing stopping you from being a direct owner through a fund or syndication. Depreciation can absolutely be split among multiple owners of an entity.
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The fund should be structured as an LLC.
The depreciation (loss) will pass through to your personal returns via the K-1.
How the loss is treated can cause some issues. For most people, it will be a passive activity which limits how much if any passive losses you can use. You may be able to offset passive losses with other passive income (consult your CPA).
If however, your “profession” is listed as Real Estate and Lending then the Passive Activity will switch to an Active Activity. Thus enabling you to offset other active income. If you are married filing jointly then the active loss will pass through to your spouse on your joint return.
Edit: If you have a high-paying job and you have a non-income producing spouse, then that spouse should own the LLC shares and/or be allocated as receiving 100% of the LLC income. Then he/she can list Real Estate and Lending as his/her active income and the losses can offset the other spouses’ active income.
Thank you SDGuy. This is exactly what I needed to hear. Most of the major funds (in example MHP Funds https://www.mhpfunds.com/) give you a K1 at the end of the year. You are not listed in the Corporation so unable to benefit from the depreciation?
That’s still the case. When was the last time they ever communicated anything to Fund II investors about the status of the remaining two properties? Try to email or call either of the partners about PSP funds (not about sending new money into their new funds), and you will never hear anything back until you follow up multiple times. It just shows how much they care about the investors after the they fund the investment.