Real Estate Tax Strategy
Ted Lanzaro on Turning Syndication Losses Into Tax-Free Cash Flow
The real estate CPA explains how limited partners carry passive losses forward, ladder new deals against old gains and pair syndications with short-term rentals.
Real Estate Investing Tax Strategies 2025: Maximize Returns with Syndications, Depreciation & More!
Video from Vinney (Smile) Chopra.
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How can passive syndication investors use K-1 losses to cut their taxes?
Limited partners can use the passive losses on a syndication K-1 to offset net rental income and capital gains from other real estate. Losses they cannot use carry forward with no practical time limit and are released when the property sells, so the losses from a new syndication can shelter the gain from an old one.
Many people who invest passively in real estate syndications watch the distributions and only skim the K-1. Ted Lanzaro, a CPA, real estate investor and broker who founded Landmark CPA Group in Connecticut, says the K-1 deserves far more attention, because the losses it reports keep working for an investor long after the year they first appear.
In an interview about syndication investing, Lanzaro walked through how limited partners can put those paper losses to use: against rental income, against gains from other real estate, and against the profit on a sale years later. None of it requires the investor to qualify as a real estate professional or to run the property day to day.
The same thinking extends to high earners who add short-term rentals, and to retirement accounts that invest alongside taxable money. The thread running through all of it is simple. Decide how each investment will be taxed before the money goes in, then track the losses carefully so that none of them are wasted along the way.
Key takeaways
- Passive losses on a syndication K-1 can offset net rental income and capital gains from other real estate.
- Unused passive losses carry forward with no practical time limit and are released when the property is sold.
- Short-term rentals can let high earners who are not real estate professionals deduct depreciation against salary.
- Retirement account investors can sit in a separate membership class that does not share accelerated depreciation.
1. Passive losses keep their value
For limited partners, Lanzaro explains, the losses passed through on a K-1 are not wasted just because the investor is passive. They can offset net rental income from properties the investor owns directly, or from other syndications that are already throwing off rental income. They can also be deducted against capital gains from real estate, which is where the planning becomes powerful.
What happens in a year with nothing to offset? Lanzaro says the carryover is basically unlimited. A passive loss that cannot be deducted this year does not expire just because the syndication runs for five or seven years. One of two things releases it: the investor eventually has passive income to absorb it, or the entity that produced the loss is sold.
Lanzaro gives a simple example. A passive investor has built up $50,000 of losses that could not be deducted. The property sells and the K-1 shows a $100,000 capital gain. Because the accumulated losses are released in the year of the sale, the investor is taxed on a net $50,000 instead of the full gain, and still walks away with the profit.
2. Ladder new deals against old gains
That release at sale opens up a second strategy. When one syndication exits with a large gain, an investor can put money into a new syndication whose early depreciation losses offset that gain. In effect, new investments shelter the gains from old ones, a ladder that keeps capital working while the tax bill on each exit shrinks.
The bigger prize, in Lanzaro's view, is tax-free cash flow. Distributions that come from profitable operations are a return on capital, and that is what a limited partner should want during the life of a deal. Because depreciation is a paper loss, the K-1 can still show a small loss while the investor puts real cash in their pocket every year.
Lanzaro is clear about the order of priorities. The reason to invest with an operator is the belief that the deal will run profitably and later sell for a gain. The tax benefit, in Lanzaro's words, is the cherry on top of the ice cream sundae. The cash flow, not the deduction, is what passive investors should really be looking for.
3. Add short-term rentals and plan retirement money apart
For high earners who cannot qualify as real estate professionals, Lanzaro points to short-term rentals. If the owner provides hotel-style services, or keeps rentals under seven days, the property is reported on Schedule C rather than Schedule E. That lets the depreciation offset ordinary income, such as a technology salary, and bypass the passive activity loss rules.
Lanzaro likes this as a combination with syndications. After the first-year loss, a short-term rental usually starts making money, and in a later year it may become a long-term rental that no longer qualifies. The syndication losses can then offset its net rental income. Lanzaro's book, Year-Round Tax Planning for Real Estate Investors: Build More Wealth. Pay Less Tax. Leave a Greater Legacy., covers where short-term rentals may fit.
Retirement accounts need their own setup. Because an LLC can allocate losses any way it chooses, Lanzaro advises a separate membership class for IRA and other retirement plan investors. They do not share in accelerated depreciation, may receive something else such as a slightly bigger preferred return, and avoid depreciation recapture at the end. Any taxable gain inside the plan, Lanzaro says, simply means the investment made money.
