MLRE: K-1 Season Explained: Depreciation, Capital Accounts, and Passive Losses

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Mar 13, 2026

A clear walkthrough of depreciation and cost segregation in real estate partnerships. Explanations of passive loss rules and when losses can be used. How capital accounts, outside basis, and allocations determine whether K-1 losses are usable. Practical tips on structuring allocations, real estate professional status, and tax review of partnership documents.

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INSIGHT

Depreciation Is A Noncash Tax Accelerator

Depreciation is a non-cash tax expense tracking building deterioration and is often accelerated with cost segregation and 100% bonus depreciation.
Cost segregation breaks property into 5–15 year components so syndications can front-load large first-year deductions.

ADVICE

Track Passive Losses And Carry Them Forward

If you're a passive LP, report K-1 losses; suspended passive losses carry forward or offset other passive income and unlock on sale.
Track Form 8582 and carry suspended losses to future passive income or sale gains.

ANECDOTE

100% Bonus Depreciation Returned Permanently

Bonus depreciation was 100% from 2017 through 2022, tapered, and now permanently reinstated at 100% for properties placed in service after Jan 19, 2025.
Nathan and Thomas note this revival removed prior concerns about phasedowns in 2025–2027.

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K-1 season can be confusing for real estate investors, especially when depreciation, passive losses, and capital accounts start showing up on your tax documents. In this episode, Nate and Tom break down the fundamentals of depreciation in real estate partnerships and how it impacts both general partners (GPs) and limited partners (LPs). They walk through how cost segregation studies accelerate deductions, why passive losses matter for investors, and how depreciation is allocated inside syndications. They also explain why capital accounts and outside basis determine whether investors can actually use the losses shown on their K-1 and why partnership operating agreements need to align with IRS rules like Section 704(b). Whether you're a syndicator structuring deals or an investor trying to understand your K-1, this episode provides a clear overview of how depreciation works inside real estate partnerships. Request a free discovery meeting: go.therealestatecpa.com/mlre Subscribe to the REI Daily Newsletter: go.therealestatecpa.com/mlresubscriber 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.