What Is a K-1? Should I expect to receive a K-1 or a 1099?
The Schedule K-1 is a standard IRS form that is issued annually to report activity from investments in partnership interests. The K-1 will report your share of any taxable items for the calendar year for investments that you hold membership interest in.
If you are an investor in a CrowdStreet Marketplace deal, you generally hold membership interest in a real estate LLC (limited liability company) treated as a partnership for tax purposes. As such, the taxable activity earned by the partnership is allocated to all of the individual members (partners) based on ownership percentage and is reported to the investors through the K-1. Your K-1 will be issued to you from the In commercial real estate, the sponsor is an individual or company in charge of finding, acquiring and managing the real estate property on behalf of the partnership. The sponsor is usually expected to invest anywhere from 5-20% of the total required equity capital. They are then responsible for raising the remaining funds and acquiring and managing the investment property’s day-to-day... More of the deal that you are invested in.
Investors who are invested in an LLC taxed as a partnership will receive a Schedule K-1, while REITs (real estate investment trusts) will issue a 1099 to show your taxable interest and/or dividends.
To learn more about taxes relating to commercial real estate, the real estate Schedule K-1, and if items such as depreciation will be included on the K-1, please visit the following articles in the CrowdStreet resource library:
How many K-1s will I receive?
An investor will receive a single federal Schedule K-1 for its investment in any Marketplace deal. Investors that have invested in more than one deal on the Marketplace will receive a separate federal Schedule K-1 for each investment. You should also expect to receive a state K-1 for the state that the property of the real estate investment is located in, unless the investment is held in a state that does not assess state income tax (also refer to the FAQ below “Do I need to file out-of-state tax returns and why?”) Additionally, if you transferred your investment from one entity to another during the year, you should expect to receive a K-1 for each entity that at any point held the investment (i.e. two in total).
Do I need to file out-of-state tax returns and why?
You may have an out-of-state filing requirement in states where investments are made. When a taxpayer owns an indirect interest in real estate through a partnership (including an LLC classified as a partnership for tax purposes), it may result in a state income tax filing obligation for such taxpayer in the state where the real estate is located (even for nonresidents.) For investments held in states that do not assess income tax, or that have minimum filing requirements below your assessed income, out-of-state returns would not be filed. Also refer to the FAQ regarding “How many K-1s will I receive?” Please consult your tax advisor to determine what your state filing requirements are.
When will I receive my K-1s and should I file for an extension?
In commercial real estate, the sponsor is an individual or company in charge of finding, acquiring and managing the real estate property on behalf of the partnership. The sponsor is usually expected to invest anywhere from 5-20% of the total required equity capital. They are then responsible for raising the remaining funds and acquiring and managing the investment property’s day-to-day... More upload K-1 packages to the CrowdStreet portal on a rolling basis as they are completed. CrowdStreet has worked with sponsors to underscore the importance of timely Schedule K-1 deliveries by March 15th and asks sponsors to communicate the critical point if the K-1 delivery is expected to be delayed as this guides the investor on their decision to file an extension for their individual tax returns. Sponsors are to communicate through the “Next Tax Document Delivery Date” function of the portal visible in your Investor Room if they are expecting delayed K-1s and CrowdStreet will assist sponsors with this process.
If you know that one or more of the sponsors you are invested with will be issuing K-1s on a delayed schedule, you may consider filing an extension. Investors should continue to follow updates from sponsors regarding K-1 delivery and timing to determine if filing an extension is necessary.
Will I still receive a K-1 even if I haven’t received a distribution yet and there is no income to report from the underlying real estate investment?
You should generally expect to receive a Schedule K-1 from sponsors that shows your allocable share of any income and/or loss items earned by real estate partnership. In some cases, sponsors may not issue a K-1 if the property of the real estate partnership did not generate gross income or did not incur any amount that would be treated as a deduction or credit for federal tax purposes. Most investments that would identify with this situation include properties that are in the development stage. In the development stage, the building generally is not yet placed-in-service and therefore no taxable income or deductible expenses would have been generated.
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Other Filings: 990-T
When an IRA (and SD-IRA) invests in alternative investments, such as a real estate investment, they may be required to file a 990-T Exempt Organization Business Income Tax Return when the investment generates UBTI (unrelated business taxable income). These returns are compiled at the IRA account level, not at the underlying investment level. If it is necessary for an IRA to file a 990-T, it will generally be prepared by the IRA Custodian, based on the aggregate amounts reported on the K-1s provided by all investment vehicles. For Self-Directed IRAs, the investor or their tax accountant would prepare the form. If you have invested in a Marketplace deal via an IRA account, please consult your IRA Custodian or tax advisor to determine what your 990-T filing requirements are.
For more information regarding investing through an IRA account and UBTI, please visit the following articles in the CrowdStreet resource library:
Disregarded Entities and W-9s
As stated by the IRS, the IRS treats a single-member Limited Liability Company (SMLLC) with activities reflected on its owner’s federal tax return as a “disregarded entity”. In regards to the Taxpayer Identification Number and use of it on the form W-9, the IRS states the following:
“For federal income tax purposes, a single-member LLC classified as a disregarded entity generally must use the owner’s social security number (SSN) or employer identification number (EIN) for all information returns and reporting related to income tax. For example, if a disregarded entity LLC that is owned by an individual is required to provide a Form W-9, Request for Taxpayer Identification Number (TIN) and Certification, the W-9 should provide the owner’s SSN or EIN, not the LLC’s EIN.”
If you are investing through a single-member LLC, make sure when completing the form W-9 you are carefully reading and following the form instructions.
For more information regarding this topic, please visit the following:
CROWDSTREET, INC. AND ITS AFFILIATES DO NOT PROVIDE TAX, LEGAL, OR ACCOUNTING ADVICE. THIS MATERIAL HAS BEEN PREPARED FOR INFORMATIONAL PURPOSES ONLY, AND IS NOT INTENDED TO PROVIDE, AND SHOULD NOT BE RELIED ON FOR, TAX, LEGAL, OR ACCOUNTING ADVICE. YOU SHOULD CONSULT YOUR OWN TAX, LEGAL, AND ACCOUNTING ADVISORS FOR ADVICE REGARDING AN INVESTMENT AS IT RELATES TO YOUR PARTICULAR TAX CONSIDERATIONS.