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State taxes for real estate funds showing a loss

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  • State taxes for real estate funds showing a loss

    I invested in one of the Origin Real estate funds that invests in multiple states. So far there have been no distributions. On my 2020 K-1 there are Illinois and Arizona sections both showing a loss.

    My question is this. Do I need to file taxes in those states for 2020 tax year? I do not live in either state so I do not owe income there. Do I need to file in order to document these losses and offset future income in those states? Can it all be documented on the return the year I have actual income there?

    Thanks for your help!

  • #2
    There isn’t a consensus about how to handle this. Some conservative CPAs will tell you to file to get those losses on the books, but some will tell you that you can just wait to file when you have gains and reconcile then. Some will tell you just to file in the really aggressive states (CA and NY top the list) that are most likely to reject your return if you just wait until you have gains.

    I had an Arizona K1 last year and didn’t bother. With Illinois I dunno, maybe I would considering how bad their budget situation is and possibly hungry for revenue they might be. If you already have an accountant who is doing your returns and will deal with the state tax authorities and their BS, I’d probably just defer to whatever he/she suggests.