Although we proactively work towards tax season year-round, we are in the thick of Tax Season (with capital letters!) right now. And, the more deals we do, the more intense this season becomes! This year we will process 35 tax returns and issue more than 1,400 K-1s to our investors. Given the time of year, I thought it would be helpful to briefly discuss the tax forms you will receive and what your responsibilities are when you receive them.
When you invest in one of our offerings, you become a member of the investment entity that owns the multifamily property. Each year we will file a partnership return with the IRS for the entity, which has entity level values representing various income and expenses. In this return is also a Schedule K-1 that goes to each member. The values on the Schedule K-1 you receive are derived by taking entity level values and using your ownership percent to allocate to you your portion of those values.
It's important to note that we at SPI Advisory are not tax experts.
We rely on our tax, financial, and legal advisors each year to assist us in both the planning and structuring of the investments on the front end as well as having our CPA prepare the tax returns for the investment entities each Tax Season.
As I’m sure you’ve heard us say before, it is our strongest recommendation that you have similar advisors in your corner and work with your advisors in advance of investing in deals like ours in order to determine the best way to take title in the deal. Having this discussion with your tax, financial, and/or legal advisors ahead of time only serves to benefit you, as how you take title can have significant impacts on your individual tax and estate planning situation.
Additionally, since you are responsible for taking the K-1 we provide and incorporating it into your tax return, as applicable, you will need a good tax and/or financial advisor on your team to answer your questions about the K-1. These advisors can help you understand how the K-1 applies to your own tax return and how its contents will impact your personal tax situation.
The Internal Revenue Code the IRS follows to create forms like the K-1 and to define how the completed form should be used for your tax return will need to be interpreted by a professional who knows how to apply the tax law to your individual tax situation, which is unique to you. SPI Advisory is unable and unqualified to advise you, as we are not tax advisors and do not have insight into your personal tax situation.