Important Tax Information for Passive Investors

Uncategorized Apr 15, 2024

Around this time of year I receive an email from my CPA to sign a tax return extension form that she has prepared for me.

Now, you might be wondering, why the extension? 

For those who are new to the realm of private investments, it's customary for investors like us to opt for an extension. This is primarily because, as investors, we typically await the arrival of a document known as a Schedule K-1 from each investment we are in.

The time it takes for an investor to receive a K-1 is dependent on:

  • The complexity of the investment
  • Preparation of financial statements
  • Legal & regulatory requirements
  • Receiving documents from partners, vendors and other entities
  • Other external factors
  • Processing time

Investors may receive a K-1 in mid March or it could be in July or later.

Consequently, many of us rely on our tax preparers to file extensions while we await the delivery of these K-1 forms.

A quick note for investors utilizing IRA funds: Although you may not be actively receiving distributions, your tax preparer still requires the K-1 to complete Form 990-T. 

One common misconception to avoid is assuming that if you haven't received a distribution during the tax year, you're exempt from filing. On the contrary, especially in real estate syndications, there may be losses that should be reported in the early years to carry forward for future tax benefits. These benefits are substantial and can significantly impact our investors' tax situations. 

Below, you'll find a sample K-1 highlighting an accounting loss. It's crucial to note that this doesn't reflect a loss in the value of your investment but rather serves as a means to defer your taxes.

For personalized advice, I encourage you to consult with your tax preparer. 


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