Frequently Asked Questions
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FAQ
Frequently Asked Questions
What are Passive loss deductions?
Income from rental real estate is generally considered a passive activity. Losses are mostly due to the situation where the property is depreciated significantly faster than the payment on the mortgage, which creates a net loss or paper loss. These net losses are taken by the investors in the early years.
Who is eligible to participate?
It’s best to let one of our analyst determine eligibility as there’s typically an avenue for everyone to participate, but our target individuals are those with high adjusted gross income who receive passive income through rental real estate.
Does Housing & Tax Consultants, LLC have a tax ruling from the IRS?
The tax strategies marketed by HTC are in compliance with the Tax Code; therefore, no rulings are necessary. However, the IRS has audited and issued revenue rulings regarding the major parts of our strategies in 1975 and 1981. No changes have been made to them since then.
HTC has tax opinions from leading tax attorneys stating our compliance and the viability of our strategies utilizing well-established areas of the tax Code, although some of them may be unfamiliar to your tax advisors. To assist your advisors in their due diligence, we will provide them with the relevant tax law and our research to properly review our proposed strategy(s).
Can I still use my current accountant and/or attorney?
Yes. We provide tax strategies and research prepared by our tax attorneys and accountants to assist you and your present advisors. We do not replace your competent advisors and we encourage your advisors to review our programs. Unless you request us to do so.
What is a Limited Disbursement Project?
In some government assisted apartment projects, the distributions of profits (or cash flow) is limited by agreement between the government and borrower. These are called limited disbursement projects.
What is a Negative Capital Account?
Each year that a taxpayer has incurred a loss from their partnership interests, their capital account was reduced by the amount of the loss. Once these losses have exceeded the partner’s initial capital, they start to build a negative capital account.
For example: If your initial capital account was $50,000 and you received a K-1 showing a loss of $56,000, then your capital account at the end of the year would be -$6,000. Each year you receive a K-1 showing a loss, the negative capital account will get larger. Most of these losses are created through depreciation deductions. The faster you are able to depreciate a property, the larger the negative capital account will grow.
For example: If your initial capital account was $50,000 and you received a K-1 showing a loss of $56,000, then your capital account at the end of the year would be -$6,000. Each year you receive a K-1 showing a loss, the negative capital account will get larger. Most of these losses are created through depreciation deductions. The faster you are able to depreciate a property, the larger the negative capital account will grow.
What if I do nothing?
Even if you do nothing, you will have made a decision that has tax consequences. For example; after the depreciation deductions have been exhausted, you will begin the slow process of recapturing these deductions through Phantom Income. You will pay tax on this income at ordinary income tax rates each year when you get your K-1s. If you take no action, the tax burden will continue to rise throughout the life of the mortgage.
