When a deal goes south, don't forget the tax play

I was recently a guest on the Investor Fuel Real Estate Pros Show, and the conversation ended up somewhere I didn't expect: what to do when a deal goes bad.

Right before we started recording, I'd just come off another podcast where a well-known investor told me his deals, and several of his partners' deals, were going south. My response surprised him: even a bad deal can carry a tax upside.

Here's the piece most investors miss. Passive losses normally can only offset passive income. But there are cases in the tax code where a loss on a rental can be used to offset active income too. If you're a limited partner sitting on paper losses right now, that is worth a conversation with your CPA before year-end, not after.

The catch: it's not automatic, and it's not free of tradeoffs.

• Sell a property for less than the loan balance, and you may trigger loan forgiveness, which is taxable income.

• Sell for a gain, and you're likely looking at depreciation recapture plus capital gains.

None of this is theoretical for me. I'm a GP on multifamily deals in Atlanta myself, and I've built my practice around the idea that most real estate investors are getting advice from accountants who aren't specialists and aren't proactive about it.

Full conversation here if you want the rest ▶️:

How Real Estate Investors Can Turn Property Losses Into Tax Savings