What LeavenWealth Investors Need to Know Heading Into Tax Season
Like gardening or working out, tax planning is an activity where you get back what you put in. Plenty of us have a weight bench gathering dust in the garage, or a plot in the backyard that won’t grow anything because we never weed it. The same principle applies to your investments. To see the best results, you need to stay engaged… especially when tax season rolls around.
For real estate investors, tax season involves understanding how your passive investments impact your broader financial picture. We recently sat down with Mitch Hagen, Chief Financial Officer of LeavenWealth, to discuss what investors can expect this year and key timelines for K-1s.
What Documents Should You Expect?
If you’re a LeavenWealth investor, your tax reporting experience will look a bit different than someone with a standard stock portfolio. The primary document you will need is a Schedule K-1. This form reports your share of the partnership’s income, deductions, and credits.
For those who also participate in our partner company, Liquid Lending Solutions, there is an additional document to look out for. “In that case, you’d receive a 1099-INT, which is for interest income,” Hagen notes.
The Big Question: When Will I Get My K-1?
Traditional brokerage firms often send out consolidated 1099s in February, but real estate syndications have a complex reporting process that requires a different schedule. “We have changes through December 31st and rely on the property managers to provide financials to us,” says Hagen.
This data must then be reconciled with lender reports and investor profiles before being sent to the tax team for technical reporting. Sometimes, external factors like software updates or state-level delays can slow things down.
Despite these hurdles, our goal is to get documents to you as quickly as possible. “We do not withhold K-1s just to release them in bulk. We provide what’s available when it’s available,” says Hagen. Generally speaking, investors can expect delivery by March 31st or earlier.
Losses vs. Performance
One area that often confuses new real estate investors is seeing a loss on their K-1. It’s important to understand that a paper loss does not necessarily mean the investment is performing poorly. In fact, it’s often a strategic benefit of real estate investing.
“Part of our model is buying assets that we force appreciation, which can lead to depreciation and other large write-offs,” Hagen explains. These write-offs, particularly from depreciation, can generate losses on paper that you may be able to offset against other income. Meanwhile, the asset itself could be thriving.
“If a K-1 is showing a loss, it does not mean the asset is not performing,” Hagen clarifies. “Your K-1 is a part of the data for the asset performance, but is not an indicator of, or at least directly, how the asset is performing.” To get the full picture, Hagen advises investors to look at quarterly reports and investor updates alongside their tax documents.
Proactive Steps for a Smoother Tax Season
Tax planning is an intentional act that can optimize your tax picture. Hagen suggests taking a proactive approach to make the filing process easier for yourself and your tax advisor.
- Create a Mental Checklist: “Eyeball [your prior year return],” suggests Hagen. “Do I have my W-2 from last year? Do I have a 1099 from Liquid Lending? Do I have my K-1 from Mitch and the LeavenWealth team?”
- Coordinate Early with Your CPA: Don’t wait until April to talk to your accountant. “You should rope them in from inception,” Hagen advises. Discuss new investments, potential state filing requirements, and how depreciation might affect your basis.
- Use Your Investor Portal: The best way to stay updated on your documents is to check the source directly. “Keep an eye on your investment portal for updates,” says Hagen. This ensures you get your information the moment it’s released.
Start the Conversation Today
By understanding the timeline, knowing what documents to look for, and communicating early with your tax advisor, you can turn a stressful deadline into a manageable process.
Remember: These are only a few of the tips and details to keep in mind. Make sure you’re in conversation with your financial advisor and CPA to take advantage of opportunities available. Get in touch and let’s start the conversation today.