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Partnership Allocations for Real Estate Entities: Special Allocations, Section 704(b) DROs and QIOs, Nonrecourse Debt

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, June 21, 2023

Recorded event now available

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This webinar will explain meeting tax compliance obligations for partnership allocations to LLC members and partners. Our authoritative panel of real estate professionals will break down the complex rules for nonrecourse deductions, special allocations, and 704(b) compliance for tax advisers working with real estate investors.


A partnership or LLC structure provides real estate investors the flexibility they need to make unusual but necessary distributions and income allocations. The price of this flexibility includes a labyrinth of challenging calculations and considerations.

Real estate partnerships and LLCs are required under IRC Section 704(b) to make tax allocations to partners and members that have substantial economic effect. Before Section 704(b), investors sought to minimize or eliminate taxes paid by aggressively allocating losses to taxable partners and gains to tax-exempt or low-bracket partners. Operating agreements must now contain a DRO, deficit restoration obligation, or a QIO, qualified income offset. 704(b) considerations are only one of many highly complex compliance obligations tax advisers to real estate investors must consider. To meet these requirements, many real estate agreements contain targeted allocation provisions to ensure the partners' intended cash distribution goals are met while complying with existing tax provisions.

Another benefit of real estate partnerships is being able to use nonrecourse debt to increase partners' basis. This can generate additional deductions for these partners but also can trigger minimum gain, the excess of a property's nonrecourse debt balance over its book value, and the relative minimum gain chargeback. Partnership allocations for real estate entities are complex. Tax practitioners working with owners of real estate need to understand how special allocations affect the tax consequences of investors.

Listen as our panel of real estate experts explains partnership allocations for real estate entities, including QIO and DRO requirements under Section 704(b), minimum gain chargebacks, and targeted allocations unique to real estate investors.



  1. Partnership allocations for real estate entities: introduction
  2. Section 704(b), substantial economic effect
  3. Special allocations
  4. Nonrecourse deductions
  5. Minimum gain
  6. Section 469, passive loss limitations
  7. At-risk limitations
  8. Recapture of losses


The panel will cover these and other critical issues:

  • Meeting the substantial economic effect provisions of Section 704(b)
  • Calculating minimum gain and minimum gain chargeback
  • Identifying targeted allocations in partnership agreements
  • Caveats of nonrecourse debt for real estate investors


Blecher, Alan
Alan M. Blecher, JD

Managing Director
CBIZ Marks Paneth

Mr. Blecher has considerable experience serving high-income and high-net-worth individuals and their closely held...  |  Read More

Gilbert, David A.
David A. Gilbert

Of Counsel
Blank Rome

Mr. Gilbert represents domestic and international clients in a wide range of federal, state, and local tax matters. He...  |  Read More

Sanders, Michael
Michael I. Sanders

Blank Rome

Mr. Sanders focuses his practice in the area of taxation, particularly in matters affecting partnerships, limited...  |  Read More

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