What Limited Partners Can Expect During Tax Season
Tax season may be months away, but Spartan is already deep in preparation. Spartan partners with CliftonLarsonAllen LLP, one of the leading CPA firms in the country, to track activity throughout the year and identify the best possible tax strategies for investors.
The staff accountants at Spartan close the books at the end of each month and typically wrap the investment books by January 15 for the previous year. They are already ordering cost segregation studies, which identify all property-related depreciation costs to ensure investors can write off the highest possible amount.
Spartan is also starting to communicate limited partnership information to its CPA to prepare tax returns for its investments and K-1s and 1099-INTs for investors.
Here’s what to expect if you invested in a syndicated investment, private debt or the Spartan Storage Fund 1 this year.
What to Expect: Equity Investors
As an equity investor, you will receive a K-1 from your operator. The Schedule K-1 is typically between one and four pages long and reports your share of income, losses and dividends.
As a rule of thumb, you should receive one K-1 per investment. However, Spartan does not file composite returns. That means if you made multiple investments in the Spartan Storage Fund 1, you will receive one K-1, despite the investment covering multiple assets in various states.
In your first year of investing, you’ll see losses from depreciation. One of the most significant benefits of investing in real estate, depreciation allows you to write off the cost of the physical devaluation of a property — all while your asset is likely gaining value in the market.
This is the last year for the 100% bonus depreciation tax benefit introduced under the Tax Cuts and Jobs Act (TCJA) of 2017. Starting in 2023, this will drop to 80% and fall another 20% every year after.
While there is no set due date, Spartan releases K-1s via the investor dashboard no later than March 31.
Now is a great time to reach out to your operator and ask when you will see your K-1 for 2022. The anticipated delivery date may inform whether or not you file for an extension.
As an experienced limited partner, I choose to extend my tax return each year. Filing for an extension is typically a no- or low-cost option that removes the stress of gathering multiple K-1s or 1099-INTs before the April deadline. This, in turn, can reduce costly errors or omissions. As a wise accountant once told me, “It’s better to extend than amend!”
What to Expect: Debt Investors
If you have invested in one of Spartan’s private debt opportunities, you will receive a 1099-INT. Your 1099-INT will list the amount of interest earned in the tax year. If you are a Spartan investor, you will receive this via the investor dashboard. Per the IRS, you must receive your 1099-INT no later than January 31, 2023.
I recommend reviewing this document for accuracy as soon as you receive it. Check with your CPA to ensure that your operator has your correct taxpayer identification number (TIN) and entity name, as there will likely be a delay in filing to make corrections.
Likewise, if you are planning on any entity transfers, don’t wait until the new year — start getting your paperwork in order now.
Tax Season Checklist for Passive Investors
Have you invested in a syndication, private debt or a fund this year? Here are some steps you can take to get organized ahead of your filing deadline.
- Let your CPA know that you invested as a limited partner in real estate.
- Ensure that your operator has your correct TIN, address and entity name. If you are a Spartan investor, you can verify this information on the investor dashboard
- If you are investing with a self-directed retirement account, ensure you correctly identified the TIN and titling.
- If you expect to receive your K-1 late, communicate to your CPA that you will need to file an extension.
- If you plan to retitle your investment, get started now.
- Get your paperwork in order if you plan to make a Roth conversion.
- As soon as your K-1 or 1099-INT is delivered, check for accuracy and notify your operator immediately if something is incorrect.
Important Dates for 2023
- March 15, 2023: Filing deadline for passthrough entities (partnerships, multi-member LLCs and S-corporations). A six-month federal extension to September 15, 2023, is available (state extensions will vary.)
- April 18, 2023: Filing deadline for C-corporations and individuals. A six-month federal extension to October 16, 2023, is available (state extensions will vary.)
Preparing For a Smooth Tax Season
Whether you’re a new or seasoned investor, tax season can be stressful to navigate. It pays off to begin laying the groundwork early. Spartan prides itself on offering a white-glove experience to help investors navigate every aspect of their passive investing journey.
If you have any questions about how to prepare for a smooth tax season, schedule a call with Ted Greene, Spartan’s investor relations manager.
Spartan does not give tax, legal or investment advice. Please seek outside counsel from your CPA or attorney before making any tax, legal or investment decisions.
Published by Ryan Gibson