Tax

FAQs

What is Form K-1?

When you invest in membership shares of an LLC you are generally taxed as a partner in a partnership. Although the partnership generally is not subject to income tax, you may be liable for tax on your share of the partnership income, whether or not distributed. Form K-1 is used by a partnership to report your share of the partnership's income, deductions, credits, etc. Include your share(s) on your tax return if a return is required. The partnership files a copy of Form K-1 with the IRS.

What is Form 1099-INT?

Form 1099-INT is used to report interest income that is paid or credited to a taxpayer. Interest income generally includes interest on bank deposits and other indebtedness (including bonds, debentures, notes, and certificates other than those of the U.S. Treasury). Depending on the structure of your investment, you may receive a 1099-INT from us that will reflect interest income that has been credited to your account on certain debt investments.

When will my Form K-1 and/or Form 1099-INT be available?

We anticipate that your K-1 package will be available in your dashboard on our site on or around March 15th. Once your K-1 package is available you will receive an email alerting you.

Please realize that because of the structure of our investments, we often are waiting for tax information from other parties. This may result in unanticipated delays and, accordingly, we cannot guarantee that you will receive your K-1 package before April 15th. Please be assured that every effort on our part will be made to ensure that we generate K-1s as timely as possible.

Form 1099-INTs will be issued by the end of February.

My Form K-1 shows income. How is it taxed?

Your Form K-1 may show income that relates to (among other things): (1) interest income; (2) net rental real estate; or (3) gains from the sale of real estate.

Interest income is considered portfolio income and will typically be taxed at your marginal tax rate. Net income from rental real estate is also taxed at your marginal tax rate, but is subject typically to passive activity rules. Capital gains will be taxed at rates of 15% to 20% depending on your tax situation.

The taxation of different categories of income is an important issue to taxpayers. Make sure that you discuss these classifications with your tax advisor.

My Form K-1 shows a loss. How is it taxed?

The amount of loss and deduction you may claim on your tax return may be less than the amount reported on Schedule K-1. It is the partner's responsibility to consider and apply any applicable limitations. Please discuss this issue with your tax advisor.

Will a YouLand debt investment always generate a 1099 and not a K-1?

A YouLand debt investment may generate either a 1099 or a K-1 depending on how the specific deal is structured. However, in both situations the income that is received is classified as interest income for tax purposes.

There is a problem with the social security number, address or other information on my K-1 or 1099. What do I do?

Your Form K-1 was prepared based upon information you have provided to us along with specific financial information relating to your investment. Please communicate any changes as soon as possible so that timely updates to your tax documents can be made.

I must file my tax return early in tax season and am unable to wait for my Form K-1. What can I do?

If you file your tax return prior to including your Form K-1, you should file an amendment to your return to include your K-1. Should there be any additional tax due you may be faced with interest and penalties. Any filing requirements and amendments should be discussed with a qualified tax professional.

I am an investor in an equity deal. What are the tax consequences of cash payments made to me during the year?

Information relating to cash distributions can be found in the “Earnings” section of your YouLand's investor dashboard. These cash payments typically represent partnership distributions under U.S. tax law and most state and local jurisdictions. They sometimes are incorrectly referred to as "dividends".

As a general rule, these partnership distributions are not taxable to you because you are taxed on your allocated share of partnership income. However, they may be taxable should you have distributions in excess of your basis in the partnership. You should discuss this issue with your tax advisor.

Are these payments subject to U.S. withholding?

While distributions from U.S. partnerships are typically not subject to U.S. withholding, certain types of U.S. source income which are allocable to non-residents are subject to U.S. withholding. Please consult your tax advisor.

What kind of YouLand investments will generate depreciation deductions?

Depreciation is recorded on real estate that is held for rental purposes. This depreciation is recorded on the LLC that holds title to the real estate. Accordingly, this will result in lower net income that is passed through to YouLand investors.

Do I have to file a state tax return?

As a general rule, if an entity has an equitable interest in real property in a specific state that state will subject the partners to taxation (assuming that state imposes income tax). Accordingly, when you invest in a YouLand equity investment opportunity that state will typically tax you and it does not matter what state you reside in.

If a state imposes a state income tax, withholding and filing requirements are typically done under the following scenarios:

1. No state withholdings are made by the partnership and the individual partners are required to file state tax returns and pay income tax on their respective share of the partnership income.
2. The partnership withholds state income tax on behalf of the partner and remits it to the state. This withholding is then reflected on Form K-1 and the partner is responsible for filing the required tax forms.
3. The partnership withholds, remits and files all information with the state and the individual partner is not required to file or pay anything. This is called a composite or group filing.

State filing requirements are complex. We strongly recommend that you discuss your state filing requirements with your tax professional.

I own my investment inside my retirement account and I received a Form K-1. How is this taxed?

Federal tax law does require that a Form K-1 be sent to every partner (or investor) who held a partnership interest during the applicable tax year. If an investor has a partnership interest that is held in a retirement account (E.g. Traditional IRA, Roth, 401(k), etc.), the amounts reported on the Form K-1 are not reported on the investor’s personal tax return.

However, investments within a retirement account do require additional considerations and may have tax consequences. Current tax law requires IRAs and certain other tax-exempt entities with more than $1,000 of gross qualified Unrelated Business Taxable Income (“UBTI”) to file a tax return using Form 990-T. The account will typically only owe taxes if its UBTI is greater than $1,000. You should discuss this issue with your tax advisor to ensure that all required tax filings and tax payments are complete and accurate.

I don't expect any income reported for my YouLand investment this year, so why did you need my social security number or EIN?

When you participate in a YouLand deal, you become a member of a limited liability company (“LLC”) that is taxed as a partnership. Partnerships are not subject to taxation as the income, deductions and/or credits merely flow through to the individual partners. However, each partnership is required to file a tax return and list all partner information such as name, address and social security number. So even if you do not expect immediate taxable income to flow through to you, you are required to furnish the information for IRS compliance.

Does YouLand withhold taxes prior to making monthly or quarterly distributions to me?

It depends. Some states require a withholding on distributions or income that is passed through to investors. Any state withholding will be reflected on your K1 at the end of the year.

What's the difference between the kind of taxes I might pay on equity flip projects versus longer-term equity rental projects?

A flip project will generally be taxed as ordinary income that is subject to the investor’s marginal tax rate. This is because a flip is classified as a “dealer” and is deemed to be in an active trade or business.

A long-term rental is defined as passive income and is subject to the passive activity rules. These rules allow you to offset passive income against passive losses. Any resulting net passive income will be taxed at ordinary income tax rates. In addition, upon the sale or disposition of a rental property, capital gains (or losses) will be generated that will be classified at a preferable long term capital gains rates.

How is my adjusted tax basis determined for computing gain or loss?

Determining your basis in an investment can be complex and should be done with the help of a tax professional. The basis of an interest in a partnership is increased or decreased by certain items.

A partner's basis is increased by the following items:

· The partner's additional contributions to the partnership, including an increased share of, or assumption of, partnership liabilities.
· The partner's distributive share of taxable and nontaxable partnership income.
· The partner's distributive share of the excess of the deductions for depletion over the basis of the depletable property, unless the property is oil or gas wells whose basis has been allocated to partners.

The partner's basis is decreased (but never below zero) by the following items:

· The money (including a decreased share of partnership liabilities or an assumption of the partner's individual liabilities by the partnership) and adjusted basis of property distributed to the partner by the partnership.
· The partner's distributive share of the partnership losses (including capital losses).
· The partner's distributive share of nondeductible partnership expenses that are not capital expenditures. This includes the partner's share of any section 179 expenses, even if the partner cannot deduct the entire amount on his or her individual income tax return.
· The partner's deduction for depletion for any partnership oil and gas wells, up to the proportionate share of the adjusted basis of the wells allocated to the partner.