K-1 Filing FAQs
- Is a Schedule K-1 required to be mailed out by January 31 as is the case for Form 1099?
- How does income reported on a Schedule K-1 differ from a Form 1099?
- Why do I receive a Schedule K-1 rather than a Form 1099?
- Should cash distributions received from the entity as reported on line 19 of my Schedule K-1 be reported as income on my personal income tax returns?
- Why is income for a year as reported on my Schedule K-1 not equal to distributions I received in that year?
- My cash distributions were less than the amount of distributions reported on Line 19 of my Schedule K-1, why?
- Do I have to file tax returns in any state in which I do not live?
- How is my adjusted tax basis determined for computing gain or loss?
- Are adjustments to my tax basis maintained by your Tax Department?
- When are Schedule K-1s sent to investors?
- I transferred my interest last year, but I still received a Schedule K-1, why?
- Can passive losses I have from other investments be applied against passive income reported on Schedule K-1s received from your office to reduce my taxable income?
- Does the ending capital account balance as reflected in item L of my Schedule K-1 represent the value of my interest?
No. The IRS requires that Schedule K-1s be mailed by April 15 (September 15 for partnerships on filing extension).
The Schedule K-1 reports each investor's allocated share of the partnership's taxable income and other reportable items. Form 1099 is generally used by banks and brokerage firms to report dividend and interest income and gross proceeds on the sale of securities.
Partnerships (including limited liability companies taxed as partnerships) are not subject to federal or state income tax. Instead, the partnership is required to issue a Schedule K-1 to each of its investors indicating their allocated shares of each category of the partnership's income (e.g., rental, interest, dividend), deduction or credit. Investors use the information contained in the Schedule K-1 in preparing their individual federal (IRS Form 1040) and state income tax returns.
No. Cash distributions reflected on line 19 of your Schedule K-1 is for informational purposes and should not be reported anywhere on your personal income tax returns.
Cash distributions represent your share of distributions from the entity. Reportable income, on the other hand, represents your allocated share of the entity's income which is effected by, among other things, depreciation expense which reduces taxable income but not cash, and by mortgage principal amortization which reduces cash but not taxable income.
Many states require partnerships that own real property in their state to make payments of estimated income taxes on behalf of its investors who are non-residents of that state. See "Do I have to file tax returns in any state in which I do not live?" The partnership recoups such payments by reducing distributions it otherwise makes to such non-resident investor. For tax purposes, it is as if the partnership distributed the full amount to you and you then re-transferred the amount paid on your behalf to the partnership.
You should consult your tax advisor regarding the need to file state tax returns in other states and whether estimated tax payments to those states are required. States generally require investors to file tax returns if an entity in which they have an investment owns real property in that state. In most cases, income taxes paid to that state may be claimed as a credit against the tax payable to the state of your residence.
California residents may claim a credit on Form 540, Schedule S for IL, MD and NJ taxes paid on their behalf, if they file a IL, MD or NJ nonresident tax return.
Generally, your tax basis is the original amount paid for the interest, increased by the cumulative amount of income and gain reported on your Schedules K-1, and reduced by any cumulative loss, deduction and credit reported on your Schedules K-1. Tax basis is also reduced (but not below zero) by the cumulative amount of distributions received from the partnership.
No. Each investor is responsible for maintaining his or her own individual tax basis. This is especially important for inherited interests. We can assist you with historical information, such as cumulative income and distributions previously reported.
Our Tax Department strives to mail Schedule K-1s as soon as audited financials are delivered to us by the outside accountants for each property. Historically, K-1 mailings occur between February and March and are sent out according to the order in which the audited financials are received. Some DSI funds rely on reporting from other parties and delays may arise in issuing K-1s for those investments. In other cases, additional time may be required to resolve legal or tax complexity issues to the investors' best advantage.
A Schedule K-1 is sent to each investor who held an interest in an entity for any period of time during the previous year. As such, K-1s reflect reportable items for that period of ownership.
Yes. Rental real estate income reported to you on our Schedule K-1s is passive income and may be applied against any passive losses you have from other investments. Special rules apply to investments you may have in publicly traded partnerships. Also, different rules apply to interest and dividend income treated as portfolio, not passive, income. As these rules are complex, we suggest you consult your tax advisor for additional information.
No. Your capital account balance reflects the original cash investment plus cumulative income or losses and distributions. This balance generally represents the adjusted basis for the partnership interests since inception.