Handling K-1's

[Physician2020]

Hi all, this is a general question but also specifically pertains to DLP's Housing Funds multiple K-1s.
Home state is California.

I've received conflicting advice on K-1s. In the past I only received an out of state K1 on one investment and so did an additional filing in PA. I have syndications that are California based so I always include the California K1 as well.

The DLP housing fund generated the federal 1065 but also George, New York, New Jersey, West Virginia (mostly blank?), PA. I've heard some say don't worry about filing a K1 until there's an exit or large sum of cash flow. Others say go ahead and file every state (but obviously incurs additional filing cost)

Is there a clear answer or do accountants simply disagree on what's best?

[jfoxcpacfp]

Accountants disagree. If the form has a number, we will file it, unless there is no impact on basis.

[The White Coat Investor]

Some state K-1s are sent because the state requires them for investors who live in those states, even if the fund doesn't invest there.

Funds also do composite returns in some states if allowed by the state and chosen by you.

In either of those two situations, you don't have to file in that state.

But if they're reporting taxable income in that state and it hasn't been taxed yet, you'll likely HAVE to file a return there.

Even if they have a loss in that state, it may be a good idea to still file a return there, although it obviously doesn't have to be filed. That's the gray area. Whether establishing that basis is worth the cost of filing is a factor for sure. For a tiny investment and a professional preparer, it probably isn't.

[Physician2020]

Thank you for the quick response! really appreciate both of your responses and that WCI is active in the forums!

“Even if they have a loss in that state, it may be a good idea to still file a return there, although it obviously doesn't have to be filed. That's the gray area. Whether establishing that basis is worth the cost of filing is a factor for sure. “

Can you clarify this a little bit for me? I guess I’m not sure about the mechanics of how K1s are generated and reported.

Let’s say I have the Georgia K1 and it shows losses due to bonus depreciation etc for 2021

I was under the impression that if you don’t file in Georgia for 2021 that the information for those loses would still carry onto the K1 for 2022.

So unlike capital loss carryover I don’t have to look back on my previous taxes to accurately file and carryover losses for 2022?

I think it might be time for me to go the full service professional tax prep route!

[jfoxcpacfp]

Thank you for the quick response! really appreciate both of your responses and that WCI is active in the forums!

“Even if they have a loss in that state, it may be a good idea to still file a return there, although it obviously doesn't have to be filed. That's the gray area. Whether establishing that basis is worth the cost of filing is a factor for sure. “

Can you clarify this a little bit for me? I guess I’m not sure about the mechanics of how K1s are generated and reported.

Let’s say I have the Georgia K1 and it shows losses due to bonus depreciation etc for 2021

I was under the impression that if you don’t file in Georgia for 2021 that the information for those loses would still carry onto the K1 for 2022.

So unlike capital loss carryover I don’t have to look back on my previous taxes to accurately file and carryover losses for 2022?

I think it might be time for me to go the full service professional tax prep route!

It depends on the laws in a particular state and their SOLs. Almost as easy for us to file as to take a pass and take a chance. You also need to realize that basis is made up of “outside” and “inside” basis and you really need to be tracking. For example, a nondeductible expense (officer life ins prem’s or nondeductible penalties) won’t impact taxes but will impact basis. States have different rules on depreciation allowed. Just can get messy. Not trying to scare you into using a pro. I would guess that many of them get it wrong and also that most of the states with little adjustments won’t matter enough for you to track, so it can def be a guess.

[Live Free MD]

Jim, are you invested in the DLP housing fund? How are you planning to handle the multiple state K-1's this year?

Some state K-1s are sent because the state requires them for investors who live in those states, even if the fund doesn't invest there.

Funds also do composite returns in some states if allowed by the state and chosen by you.

In either of those two situations, you don't have to file in that state.

But if they're reporting taxable income in that state and it hasn't been taxed yet, you'll likely HAVE to file a return there.

Even if they have a loss in that state, it may be a good idea to still file a return there, although it obviously doesn't have to be filed. That's the gray area. Whether establishing that basis is worth the cost of filing is a factor for sure. For a tiny investment and a professional preparer, it probably isn't.

[The White Coat Investor]

Jim, are you invested in the DLP housing fund? How are you planning to handle the multiple state K-1's this year?

Yes.

Haven't seen the DLP Housing Fund K-1 yet. But if it requires me to file in multiple states, I'll file in multiple states. Won't be the first time for me. I filed in 9 states last year, so this whole thing isn't new to me.

If I'm given the option for a composite return I always take it though, not only for ease, but I'm already in the top bracket anyway so there's no more tax to pay for the convenience.

[Live Free MD]

Yes.

Haven't seen the DLP Housing Fund K-1 yet. But if it requires me to file in multiple states, I'll file in multiple states. Won't be the first time for me. I filed in 9 states last year, so this whole thing isn't new to me.

If I'm given the option for a composite return I always take it though, not only for ease, but I'm already in the top bracket anyway so there's no more tax to pay for the convenience.

The DLP Housing K-1 should be available in your online portal now if you want to take a look at it.

This is quite confusing because Robert Schimeneck from DLP assures me that this is a composite return, with no need to file state taxes. Here is what he sent me: "The K-1 received is a composite and you do not need to file in the States you listed. Those states are required to be listed individually per their tax law however we provide the information to them from the fund, you just need to file in your State of residence."

I also found it interesting that my composite K-1 lists interest income of $1573. The K-1 for Georgia lists a "Total income for Georgia purposes" of $1573 but then lists Total Georgia income of $0. That sounds contradictory. Indiana lists an income of $0. New Jersey lists a "partnership income" of $1573, without any other fields. New York lists investment state income of $0. Pennsylvania lists income of $0. West Virginia lists income as $0. It does not make sense that some of the individual state incomes would be exactly the same as the federal composite income.

Thank you so much for your help. I figure that since DLP is a sponsor of the site, the answer to this question will help many other people who follow WCI.

[The White Coat Investor]

The DLP Housing K-1 should be available in your online portal now if you want to take a look at it.

This is quite confusing because Robert Schimeneck from DLP assures me that this is a composite return, with no need to file state taxes. Here is what he sent me: "The K-1 received is a composite and you do not need to file in the States you listed. Those states are required to be listed individually per their tax law however we provide the information to them from the fund, you just need to file in your State of residence."

I also found it interesting that my composite K-1 lists interest income of $1573. The K-1 for Georgia lists a "Total income for Georgia purposes" of $1573 but then lists Total Georgia income of $0. That sounds contradictory. Indiana lists an income of $0. New Jersey lists a "partnership income" of $1573, without any other fields. New York lists investment state income of $0. Pennsylvania lists income of $0. West Virginia lists income as $0. It does not make sense that some of the individual state incomes would be exactly the same as the federal composite income.

Thank you so much for your help. I figure that since DLP is a sponsor of the site, the answer to this question will help many other people who follow WCI.

My first year with this DLP K-1. One of the main reasons I hired my taxes out last year was to answer questions like this one. (The other was to save some of my own time). Maybe I'll have answer for you in October when my taxes get done.

Okay, I see my K-1 now.

It's a $250K investment made in 2021. $0 in Box 1 for me. $551 in box 5. $16,687 with Code A in Box 19. That's the Federal K-1
There's a Georgia one, says Total Georgia Income $0
There's an Indiana one, says $0 in Indiana income.
There's a NJ one, says no NJ income.
There's a NY one, says no NY income.
There's a PA one, $0 in PA income
There's a WV one, just a whole bunch of $0s there.

So I don't see that this K-1 will require me to file in any state.

Hope that helps.

[Live Free MD]

My first year with this DLP K-1. One of the main reasons I hired my taxes out last year was to answer questions like this one. (The other was to save some of my own time). Maybe I'll have answer for you in October when my taxes get done.

Okay, I see my K-1 now.

It's a $250K investment made in 2021. $0 in Box 1 for me. $551 in box 5. $16,687 with Code A in Box 19. That's the Federal K-1
There's a Georgia one, says Total Georgia Income $0
There's an Indiana one, says $0 in Indiana income.
There's a NJ one, says no NJ income.
There's a NY one, says no NY income.
There's a PA one, $0 in PA income
There's a WV one, just a whole bunch of $0s there.

So I don't see that this K-1 will require me to file in any state.

Hope that helps.

Extremely helpful. Thank you so much. When introducing the DLP housing fund in your real estate newsletter and on the Facebook page, it might be helpful to clarify to potential investors that no state filings are expected. I think this is an important benefit to the fund.

[The White Coat Investor]

Extremely helpful. Thank you so much. When introducing the DLP housing fund in your real estate newsletter and on the Facebook page, it might be helpful to clarify to potential investors that no state filings are expected. I think this is an important benefit to the fund.

Well, to be fair they did tell me this and it has been mentioned on the podcast. But I was a little skeptical so I have been waiting to actually get my first K-1 from them. This is my first one. I don't know that there is any guarantee going forward. I think the only way there can be is if they only invest in states without state income taxes or that allow composite returns.

[Mad Dog]

I personally try to avoid K-1 stocks. My accountant adds antra fee for dealing with these types of stocks.

[bovie]

I personally try to avoid K-1 stocks. My accountant adds antra fee for dealing with these types of stocks.

Not a stock.