Tax Issues with Preferred Returns for Limited Partners [Tax Smart Daily 002]

Today's topic is preferred returns for limited partners in real estate syndications, and how to resolve tax issues that come along with them. Enjoy!
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[@mattbontrager]

Awesome video! Quick question, when pref is based on unreturned capital, and considered a guaranteed payment, it's deductible to the entity right? And when the pref is considered a return of capital (not return ON capital) it's a distribution and not deductible to the entity?
Thanks again!

[@TheRealEstateCPA]

A GP is deductible to the entity. And a pref distribution is a return OF capital (since it's just a preference for who gets distributed capital first)... a pref profit allocation will create taxable income.

[@mattbontrager]

Also how would it be taxed if the pref was based on performance?

[@TheRealEstateCPA]

I believe you'd just have a profit allocation.