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Real Estate Crowdfunding Tax Loss Harvesting (2026): How to Recover Losses from PeerStreet, Yieldstreet, DiversyFund, and Stuck REITs

By Jorge·May 3, 2026·19 min read

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Quick Answer

Tax loss recognition for real estate crowdfunding losses depends entirely on the legal form of the instrument, not the marketing label, and on whether the loss is "fixed by an identifiable event" under Treas. Reg. §1.165-1(d). PeerStreet: plan effective May 2024 — claim the §165(g) capital loss in 2024 for confirmed claims; later year for disputed claims. Yieldstreet: per-fund loss recognition when the SPV K-1 reports "Final" with zero ending capital — multiple funds have triggered through 2025-2026. DiversyFund: missed 12/31/2025 dissolution date; wind-down expected through 2026-2027; loss is NOT YET harvestable for most investors. MogulREIT I/II: NAV crashed from $11→$6.85 and $10→$6.85 (both marked at $6.85 as of March 31, 2026), but the SRP is suspended — so paper losses are unrealized and non-deductible. The §6511(d)(1) 7-year statute of limitations for refund claims on §165(g)(2) worthless securities lets investors amend back to 2019 returns. Capital loss rules unchanged for 2026: $3,000/yr ordinary income offset, unlimited carryforward, 1:1 against capital gains.

This is the article real estate crowdfunding investors actually need in 2026 and almost no one has written it correctly. The 2024-2026 stretch produced enough investor losses across PeerStreet (Chapter 11 Plan effective May 2024), Yieldstreet/Willow Wealth ($208M of disclosed losses, Dec 2025 update), DiversyFund (missed 12/31/2025 dissolution date), MogulREIT I and II (NAV crashed 30%+ with suspended share repurchases), and CrowdStreet's Nightingale fraud (Schwartz sentenced to 7 years; approx. 13% recovery to date) to make tax-loss harvesting a meaningful question for real money.

But the answer is fragmented across IRC §165(g), §166, §1091, §465, §469, §199A, and §6511(d)(1) — and timing rules can shift the year of recognition by 1-3 years depending on which "identifiable event" you can document. Most generic "investor losses" articles get the timing wrong, and the IRS audits returns claiming worthless-securities losses at materially higher rates than typical capital-loss claims.

This is forensic tax content, not tax advice. Consult a CPA before filing. Citations to IRC sections, court cases, and primary sources are below.

Step 1 — What Did You Actually Own?

The IRC section governing your loss depends on the legal form of the instrument, not the platform's marketing copy.

Platform	Typical Instrument	IRC Section That Governs
Fundrise eREIT, MogulREIT I/II, DiversyFund Growth REIT	Reg A+ shares of a REIT (corporate stock equivalent)	§165(g)(1)/(2)(A) — capital loss on worthlessness
PeerStreet	Borrower Payment Dependent Notes (BPDNs) — debt securities tied to specific loans	§165(g)(2)(C) for security treatment OR §166(d) non-business bad debt
Yieldstreet BPDNs	Notes of issuing SPV (corporation/LLC)	§165(g)(2)(C) — capital loss on default
Yieldstreet equity SPVs	LLC member interests	§731/§741 — capital loss on liquidating distribution per final K-1
Groundfloor LROs	Reg A+ securities, "limited recourse"	§165(g)(2)(C) — capital loss on default and final recovery
Groundfloor Notes (4.75/5.75/8.25/9.25%)	Reg A+ corporate notes	§165(g)(2)(C) on issuer default
Arrived Homes series LLC	Direct LLC interest, pass-through	K-1 driven; capital or ordinary depending on activity character
EquityMultiple Alpine Notes	Notes; first-loss tranche held by EM	§165(g)(2)(C) on issuer default

The single most consequential distinction: REIT shares and corporate notes ride §165(g) (worthlessness deemed sale on Dec 31, capital loss). LLC member interests ride §731/§741 (loss on liquidating distribution per final K-1). Different timing, different documentation.

Step 2 — Was the Loss "Fixed by an Identifiable Event"?

Treas. Reg. §1.165-1(d) requires losses to be evidenced by a closed and completed transaction fixed by identifiable events. The Supreme Court's standard from Boehm v. Commissioner, 326 U.S. 287 (1945), is the controlling precedent: "mere shrinkage in value" is insufficient; insolvency alone is insufficient.

Acceptable identifiable events for crowdfunding losses:

Bankruptcy plan confirmation establishing recovery percentage
Final liquidating distribution from the estate
Issuer cessation of business + sale of substantially all assets
Final K-1 marked "Final" with zero ending capital account
SEC-receiver final report with no recovery
Formal dissolution + asset distribution

Not acceptable:

NAV decline alone (MogulREIT pattern)
Distribution suspension alone (RealtyMogul pattern)
Lawsuit pending (DiversyFund pattern)
Filing of bankruptcy without plan confirmation

The burden of proof is on the taxpayer, not the IRS. Documentation is everything.

Checklist · PDF · 1 page

The 8 red flags we check in every SEC filing

Going-concern language, cash-burn, suspended redemptions, appraisal-NAV gaps. Comes with the watchlist: the next platform showing these signs, before it makes the news.

Platform-by-Platform Loss Event Timeline

PeerStreet — Plan Effective May 2024

Filed Chapter 11 June 26, 2023, Case 23-10815, D. Del.
Plan confirmed April 2024; Plan Effective Date early May 2024
Investors classified as general unsecured creditors of Peer Street Funding LLC and PS Funding Inc.
Per Reg. §1.165-1(d): the "identifiable event" that fixes the loss is plan confirmation establishing recovery percentage.

For confirmed claims: 2024 is the year of recognition. For disputed claims (those reserved by the Plan pending resolution), the loss event is the year disputation resolves.

Loss amount = principal basis − total recovery (interim distributions + final distribution).

The §6511(d)(1) 7-year statute of limitations under means investors can amend back to 2019 returns — useful if the loss event was earlier than initially recognized.

Yieldstreet / Willow Wealth — $208M, Per-Fund Recognition

Per Yieldstreet's December 2025 disclosures, $208M of investor losses across approximately 30 deals (approx. 30% failure rate vs the 2-8% private credit norm). Components include:

$89M marine / Vessel Deconstruction (defaulted 2020, ships missing/scrapped)
$78M previously reported across multiple funds
$41M added in the December 2025 update

Recognition is per fund, not platform-wide:

For BPDNs: §165(g)(2)(C) capital loss in year debt becomes worthless
For SPV equity (LLC member interests): §731 capital loss in year final K-1 issued with zero ending capital

The October 2025 rebrand to Willow Wealth removed the historical performance chart from the public site — preserving documentation now is harder. Investors should pull and archive their full transaction history before further site changes.

DiversyFund — NOT YET Harvestable for Most Investors

The DiversyFund situation is the trap: facts look bad, but the worthlessness standard isn't met yet.

Documented:

SEC Settlement June 9, 2023 (Admin Proc. 33-11204): permanent suspension of Reg A exemption
Federal lawsuit Ferry v. DF Growth REIT (S.D. Cal. 3:22-cv-2001): MTD partially denied December 2024
Growth REIT I dissolution date 12/31/2025 — MISSED
425+ BBB complaints
Wind-down "expected through 2026-2027"

Why the loss isn't ripe: §165(g) requires demonstrable worthlessness with no recovery probability. An active wind-down with possible asset sales does not establish worthlessness. Most investors must wait for final distribution or a formal worthlessness declaration.

Aggressive position (high audit risk, requires CPA memo): some practitioners argue that SEC Reg A suspension + missed dissolution + Ferry MTD denial combined constitute identifiable events for a current-year §165(g) claim. This is defensible but invites scrutiny. Document the file now; claim when worthlessness is identifiable through formal closure.

MogulREIT I and II — Frozen Unrealized Loss

This is the single most misunderstood category. Recap of what happened:

MogulREIT I NAV: $11.02 peak → $6.85 as of March 31, 2026 (approx. 37.8% decline)
MogulREIT II NAV: $10.00 → $6.85 as of March 31, 2026 (approx. 31.5% decline)
Distributions cut: 6% → 3% → approx. 1.5% of NAV (Q2 2026) on Income REIT; Apartment Growth REIT distributions paused
Share Repurchase Program (SRP): may be amended/suspended after material NAV decrease — suspended April 21, 2026
Wideman Company acquired RealtyMogul November 2025

No loss event has occurred for MogulREIT investors. NAV declines are paper losses; they are not deductible until disposition. The SRP suspension means investors cannot trigger sale events at the platform's stated price.

The only paths to recognition currently available:

Wait for SRP to reopen and sell back to the issuer
Wait for REIT liquidation and final distribution
Sell the position to a third party (no liquid secondary market for these REITs)

Until one of those occurs, the loss is unrealized and non-deductible. This is the "frozen unrealized loss" trap competitor articles never discuss.

For full forensic detail see MogulREIT I & II NAV Crash 2025-2026.

CrowdStreet / Nightingale — Partial Recovery, Final Year Pending

Elie Schwartz (Nightingale CEO) sentenced to 7 years federal prison
Trustee Anna Phillips ongoing
approx. 13% recovered to date through final-of-2025 reporting
Loss event: year trustee makes final distribution and recovery is fixed

For investors with confirmed (non-disputed) claims, partial losses can be claimed once the recovery percentage is established by trustee action, with adjustments in the final year. Conservative position: defer claim until trustee final report.

If you have real money in this, do not decide it alone.

We can tell you what the filings say. What we cannot tell you is what it means for your particular position, your tax situation and the rest of your portfolio, and anyone who does that from a web page without knowing your circumstances is guessing. With capital tied up in something you cannot simply sell, that is the part that actually matters.

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Worthless Securities Mechanics — IRC §165(g) Deep Dive

§165(g)(1) — The Deemed-Sale Rule

If a security that is a capital asset becomes worthless during the tax year, the loss is treated as a sale on the last day of that taxable year. This matters for holding period: a position acquired 11 months before December 31 of the worthlessness year becomes a long-term capital loss because of the deemed-sale-on-last-day rule converting the holding period to "more than one year" — but only if the deemed sale crosses that threshold.

§165(g)(2) — What Qualifies as a "Security"

The statute defines security as:

(A) a share of stock in a corporation
(B) a right to subscribe for stock
(C) a bond, debenture, note, or evidence of indebtedness issued by a corporation or government with interest coupons or in registered form

For RE crowdfunding:

✅ eREIT shares, MogulREIT shares, DiversyFund Growth REIT shares (qualify under (A))
✅ Yieldstreet BPDNs (qualify under (C) — registered notes of corporation/LLC)
✅ Groundfloor LROs and Notes (qualify under (C) — registered Reg A securities)
✅ EquityMultiple Alpine Notes (qualify under (C))
❌ Arrived series LLC member interests (NOT a "security" under §165(g)(2) — capital loss runs through §731/§741 instead)

Total Worthlessness Required

§165(g) does not allow partial worthlessness deductions. The position must be wholly worthless in the year claimed. A 90% NAV decline does not qualify; a 100% recovery of zero does.

The 7-Year Statute of Limitations — §6511(d)(1)

This is the most underutilized tax provision in real estate crowdfunding loss recovery. §6511(d)(1) extends the refund-claim statute of limitations to 7 years from the due date of the return for refund claims based on:

§165(g)(2) worthless securities
§166 bad debts of corporate-issued debt

Most CPAs default to the standard 3-year statute. For a 2026 filing, 7 years back puts you at amending the 2019 return — material if you missed claiming a worthlessness loss in earlier years.

Practical use case: investor missed claiming a 2020 PeerStreet write-off in their 2020 return (PeerStreet wasn't bankrupt yet, but specific notes had defaulted and recovery was demonstrably zero). They can amend the 2020 return any time before April 15, 2027 (return due 4/15/2021 + 7 years = 4/15/2028; statute is 7 years from due date = 4/15/2028).

§166 Non-Business Bad Debt — The Fallback

For debt that doesn't qualify as a "security" under §165(g)(2)(C):

Business bad debt (§166(a)(1)): ordinary deduction; partial worthlessness allowed
Non-business bad debt (§166(d)): treated as short-term capital loss; only deductible when wholly worthless; no partial deduction

For most retail crowdfunders, debt that doesn't fit (C) (e.g., direct loans not evidenced by a registered note) defaults to §166(d) — short-term capital loss treatment. The §166(d) path is materially less attractive than §165(g) because it loses long-term capital gains rate eligibility.

Wash Sale Asymmetry — §1091

§1091 disallows recognized losses on "stock or securities" if substantially identical securities are bought within 30 days before or after the sale. Application to RE crowdfunding:

Sale → Repurchase	§1091 applies?
Fundrise eREIT → another Fundrise eREIT	YES — substantially identical REIT shares
Yieldstreet BPDN → another Yieldstreet BPDN of different fund	Likely NO if different SPV/fund
Groundfloor LRO → another Groundfloor LRO of different loan	NO — different securities
Arrived series LLC → another Arrived series LLC	Generally NO — LLC member interests are not "stock or securities" under §1091 [NEEDS practitioner verification — IRS has not issued direct guidance]
Lofty token → another Lofty token	Same as above; LLC tokens generally not §1091

Practical rule: If selling a Reg A REIT or BPDN at a loss, do not repurchase substantially identical securities within 30 days. If selling an LLC token at a loss, the wash sale rule generally doesn't apply — but tax software often flags it incorrectly.

§465 At-Risk and §469 Passive Activity — Order of Limitations

K-1 driven losses (Arrived series LLC, Yieldstreet equity SPVs, EquityMultiple equity deals) flow through a four-step limitation hierarchy:

§704(d) basis limit — loss can't exceed adjusted basis in the partnership interest
§465 at-risk limit — loss can't exceed amount at risk (cash + adjusted basis of contributed property + recourse debt + qualified nonrecourse financing)
§469 passive activity limit — loss can only offset passive income unless investor materially participates
§461(l) excess business loss limit (extended through 2028) — caps non-corporate active business losses

The §465 trap: if you previously deducted losses up to your at-risk amount, then receive a partial recovery, prior losses recapture as income under §465(e). Most retail filers miss this on the final K-1.

Capital Loss Rules 2026 (Unchanged)

§1211(b): $3,000/yr ordinary income offset ($1,500 MFS)
§1212(b): Unlimited carryforward; no expiration
1:1 offset against capital gains
Losses retain character (LT/ST) on carryforward

Documentation Checklist

Before filing, gather:

Original purchase confirmation / subscription agreement / PPM
Platform statements showing full investment timeline
Bankruptcy plan confirmation order (PeerStreet: Stretto case docket 23-10815)
Final K-1 with "Final K-1" box checked + zero ending capital account
Issuer correspondence declaring worthlessness or final distribution
Form 1099-B (secondary sale) or 1099-DA (tokenized — new for 2026)
SEC filings (Form 1-K, 1-U) showing wind-down / liquidation
Form 8949 + Schedule D for capital losses
Form 6198 for §465 at-risk computation
Form 8582 for §469 passive loss tracking

For amending under §6511(d)(1) 7-year window: Form 1040-X plus the original-year supporting documentation.

ProsCons

Pros

§6511(d)(1) 7-year statute of limitations lets investors amend back 7 years for §165(g)(2) worthless-securities claims — vs the standard 3 years most CPAs default to.
§165(g)(1) deemed-sale-on-last-day rule can convert a short-term holding into long-term capital loss treatment, preserving the long-term character of the loss.
Per-fund Yieldstreet recognition means individual fund worthlessness can be claimed without waiting for platform-wide events — multiple funds have triggered through 2025-2026.
Capital loss carryforward is unlimited (§1212(b)) — unused losses survive indefinitely and offset future capital gains 1:1 plus $3,000/yr against ordinary income.
LLC token swaps generally fall outside §1091 wash sale — Arrived series LLC, Lofty tokens can be repurchased without the 30-day wait that applies to REITs and BPDNs.

Cons

Worthlessness standard is strict — Boehm v. Commissioner (1945) requires identifiable events; mere NAV decline (MogulREIT) or distribution suspension (RealtyMogul) does NOT qualify.
MogulREIT NAV crashes are unrealized losses — frozen and non-deductible until SRP reopens or REIT liquidates. The "frozen unrealized loss" trap competitor articles ignore.
DiversyFund losses are not yet harvestable for most investors despite SEC enforcement, MTD denial, and missed dissolution date — wind-down means no closed-and-completed transaction yet.
§166(d) non-business bad debt is short-term capital loss only — the fallback for non-§165(g)(2) debt is materially less attractive, no long-term capital gains rate.
§465 at-risk recapture trap — prior losses deducted up to at-risk amount recapture as income on partial recovery; commonly missed on final K-1.
Audit risk is elevated for worthless-securities claims — IRS scrutinizes the identifiable-event documentation; aggressive position on DiversyFund or partial-recovery cases invites attention.

Decision Framework — Year-by-Year

For a 2026 tax filing covering 2025-or-earlier loss events:

PeerStreet confirmed claims: claim the loss in 2024 (Plan Effective Date). If missed, amend 2024 via Form 1040-X — within the 3-year normal window (4/15/2028) AND the 7-year §6511(d)(1) extended window (4/15/2032).

Yieldstreet specific funds: claim per-fund based on year of final K-1 or year debt becomes worthless. Multiple funds have triggered through 2025-2026.

CrowdStreet/Nightingale confirmed claims: claim in year trustee fixes recovery percentage; final claim adjusts in final-distribution year.

DiversyFund: wait unless taking aggressive position with CPA memo. Document the file now (SEC enforcement, MTD denial, missed dissolution) and claim when formal closure produces an identifiable event.

MogulREIT I/II: NO LOSS EVENT. NAV declines are paper losses; SRP suspension means no disposition. Wait.

Fundrise eREITs: ROC distributions reduce basis; sale via redemption window is the trigger event. Suspended redemption = no event.

FAQ

Frequently Asked Questions

For more on this topic from CrowdfundedWealth:

Yieldstreet Review 2026 — $208M in investor losses and the rebrand.
DiversyFund Review 2026 — What happened to the $500 real estate app.
What happened to PeerStreet — How to recover the loss on your tax return.
Every crowdfunding failure 2020-2025 — Loss data for tax-deduction purposes.
HoneyBricks Review 2026 — Why the tokenized CRE platform went dormant.

Sources

IRC §165: https://www.law.cornell.edu/uscode/text/26/165
Treas. Reg. §1.165-1(d): https://www.law.cornell.edu/cfr/text/26/1.165-1
Treas. Reg. §1.165-5 (worthless securities): https://www.law.cornell.edu/cfr/text/26/1.165-5
IRC §166 (bad debts): https://www.law.cornell.edu/uscode/text/26/166
IRC §1091 (wash sales): https://www.law.cornell.edu/uscode/text/26/1091
IRC §465 (at-risk): https://www.law.cornell.edu/uscode/text/26/465
IRC §6511 (limitations on refund claims): https://www.law.cornell.edu/uscode/text/26/6511
Boehm v. Commissioner, 326 U.S. 287 (1945)
IRS Pub 550 (Investment Income and Expenses): https://www.irs.gov/publications/p550
IRS Pub 925 (Passive Activity and At-Risk Rules): https://www.irs.gov/publications/p925
IRS Topic 409 (Capital Gains and Losses): https://www.irs.gov/taxtopics/tc409
PeerStreet bankruptcy docket (Stretto): https://cases.stretto.com/peerstreet/
SEC Admin Proc. 33-11204 (DiversyFund 2023): https://www.sec.gov/files/litigation/admin/2023/33-11204.pdf
Ferry v. DF Growth REIT (S.D. Cal.): https://law.justia.com/cases/federal/district-courts/california/casdce/3:2022cv02001/749034/40/
CNBC Yieldstreet/Willow Wealth investigation Dec 2025: https://www.cnbc.com/2025/12/05/yieldstreet-investors-losses-willow-wealth-rebrand.html
Form 1099-DA Instructions 2026: https://www.irs.gov/instructions/i1099da

Cross-references on this site: What Happened to PeerStreet — full bankruptcy timeline. Real Estate Crowdfunding Failures 2020-2025 — every platform failure in scope. DiversyFund Review — wind-down status. Yieldstreet Review — $208M loss breakdown. MogulREIT NAV Crash 2025-2026 — frozen unrealized loss case study. Real Estate Crowdfunding Taxes Explained — broader tax primer.

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