What is a Direct Participation Program?

If you are screaming for financial shelter, then a Direct Participation Program (DPP) may be the cure for what ails you. This type of passive investment tends to invest in real estate or energy-related ventures and allows investors to benefit directly in the cash flow and tax benefits of the underlying investment. Although, recent revisions to tax legislation laws have severely limited their tax benefits.

DPP are sold as limited partnership units. The units provide a bit of ownership in a publicly traded company and provide the unit holder a stake in the income generated by the partnering company. However, they are high-risk investments that are not be liquidated.

DPPs risk the entire amount of money invested in the partnership. They are extremely difficult to sell on the open market, as they are extremely difficult investments to place a value on. Because of the risks and lack of ability to access money once invested in a direct participation program, those with long-term investment goals are best suited to play that game.

Until 1987, DPPs were fantastic tax shelters since all the invested money could be written off. But the Taxpayer Relief Act passed in 1986 changed the structure of DPPs so the deductions were restricted to what was actually at risk. Additionally DPPs were switched to a passive income classification that could only be used to offset other passive income.

Investors in DPPs may also be required to put in additional money to further strengthen their investments. They also may have to meet certain pre-requisites for investing in the DDP, such as being in a high-income bracket and having a huge net worth.