If you are a new passive investor and made an investment with PassiveInvesting.com in 2023, you will receive a Schedule K-1 in your portal during the month of March. Our third-party accountancy is hard at work creating your K-1’s, and an email will automatically be sent to you when the K-1’s are uploaded to the portal. To make sure there are no issues with your K-1, I want to share a few items you should check to ensure there are no delays with filing your taxes. If you find an error when reviewing your K-1, it is critical to contact us immediately so we can resubmit your K-1 with the corrected information in a timely fashion. The longer you wait, the less likely we will be able to get these resubmitted in time for your filing date.  

As a reminder, let me say that I am not an accountant or a tax professional. All questions regarding your taxes and their application to your individual or entity return should be directed to a tax professional. 

When reviewing your K-1, there are a few sections that take priority. 

First, review Part I. This is the name of the investment that you invested in. Check this section to make sure that our accountancy is filing taxes for you for the correct investment. Our asset LLCs utilize an address naming nomenclature that reflects the address of our assets. You can confirm the name of the partnership LLC in item A with the asset name listed on your portal or within your PPM (private placement memorandum).

Second, review Part II. Items E through I2 reflect the name of the entity you utilized to invest in the asset and what type of entity it is. This information is taken directly from the PPM you filled out when completing the initial investment. The most common mistakes we see here are the name and address of the entity. The other common mistake we see is for investments through SDIRAs (self-directed individual retirement accounts). The custodian name of the SDIRA must be listed here for the benefit of (FBO) your IRA account.

Part II, item J is the Partner’s Capital Account Analysis, which depicts your share of the partnership’s profit, losses and invested capital. If you are in the first year of the investment, the “beginning capital account” will be zero dollars, and the “capital contributed during the year” is the amount you invested into the asset. The “current year net income (loss)” will usually be negative in the first year due to bonus depreciation. The “withdrawal and distributions” is the distribution you received from the asset over the first year. You can confirm the distribution amount with the distribution amount stated in your portal.

Lastly, review Part III. Part III is where your income (or loss) from the asset will be recorded. If you are in one of our PIC car washes or hotels, your income (or loss) will be in box 1, as the income is from ordinary business income. If you are in one of our storage or multifamily deals, your income (or loss) will be in part III, box 2, since that is classified as rental income. If you are in the debt fund, your income will be recorded as interest income in box 5. Even if you are not in the debt fund, there may be interest income listed due to the asset earning interest on cash. Lastly, box 19 of Part III is your distribution for the year, the same distribution as listed in Part II, item I.  

We at PassiveInvesting.com diligently work with our accountancy every year to make sure your K-1’s are accurate. Taking a few moments to review your K-1 as soon as you receive it ensures its accuracy. If you find any errors, please reach out to us. The sooner we are aware of an error, the faster we can resubmit your K-1’s correctly and meet your filing dates.