MLRE: Disguised Sales: How Refinances Can Trigger Unexpected Taxes in Syndications

Apr 3, 2026

A deep dive into how partnership contributions and later cash distributions can unexpectedly trigger taxable sales. Covers why distributions and debt relief can change partner basis and act as deemed distributions. Explains the two-year presumption that can turn refinances into taxable events and the debt-financed distribution safe harbor that may prevent trouble.

Ask episode

AI Snips

Chapters

Transcript

Episode notes

INSIGHT

How Distributions Affect Partner Basis

Partnership distributions reduce a partner's outside basis while income allocations and contributions increase it.
Losses (including depreciation) also decrease basis, so tracking basis year-over-year is essential for tax outcomes.

INSIGHT

Debt Paydown Counts As Deemed Distribution

Paying down partnership debt or transferring partner liabilities counts as a deemed distribution under partnership tax rules.
Example: if a $500K loan is paid down, partners are treated as relieved of that debt and effectively received a distribution.

INSIGHT

Contributing Property Then Taking Cash Looks Like A Sale

Contributing property to a partnership then receiving cash-out distributions can be treated as a disguised sale under §707 if it mirrors a sale.
The IRS scrutinizes fast, large cash returns to contributing partners as effectively selling the asset.

Get the Snipd Podcast app to discover more snips from this episode

Get the app

In this episode of the Major League Real Estate Podcast, Thomas Castelli and Nate Sosa break down one of the most misunderstood areas of partnership tax law: disguised sales. While many investors assume distributions and refinance proceeds are tax-free, the rules change when partnerships and contributed property are involved. Get it wrong, and what you thought was a tax-free event could actually be treated as a taxable sale. You’ll learn: - How partnership distributions actually work (and how they affect your basis) - What a disguised sale is and why the IRS cares - The 2-year rule that can trigger unexpected taxes If you’re a syndicator, GP, or investor contributing property into deals, this episode is a must-listen to avoid costly tax mistakes. Request a free discovery meeting: go.therealestatecpa.com/mlre Subscribe to the REI Daily Newsletter: go.therealestatecpa.com/mlresubscriber Get the Aircraft Acquisitions White Paper: www.therealestatecpa.com/aircraft-white-paper/ Get the Ultimate Guide for Real Estate Syndications: go.therealestatecpa.com/mlreultimateguide Submit your questions to: go.therealestatecpa.com/question The Major League Real Estate podcast is for general information purposes only and is not intended to provide, and should not be relied on for, tax, legal, investing, financial, or accounting advice. Information on the podcast may not constitute the most up-to-date legal or other information. No reader, user, or listener of this podcast should act or refrain from acting on the basis of information on this podcast without first seeking legal and tax advice from counsel in the relevant jurisdiction. Only your individual attorney and tax advisor can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this podcast or any of the links or resources contained or mentioned within the podcast show and show notes do not create a relationship between the reader, user, or listener and podcast hosts, contributors, or guests. Any mention of third-party vendors, products, or services does not constitute an endorsement or recommendation. You should conduct your own due diligence before engaging with any vendor.