If you made your first syndication investment in 2025, something new will be showing up in your inbox soon.
It's the IRS’s Schedule K-1, and if you're used to the simplicity of a W-2 or a 1099, it can look daunting at first.
And it might include a number that makes your stomach drop at first glance – because it says you lost money on an investment that’s been sending you distributions.
But that “loss” is probably the best news on the entire form.
Why you received a K-1
When you invested in a real estate syndication, you didn’t buy a stock. Deal structures vary, but most likely, you became a member in an LLC – the legal entity that owns the property.
That entity doesn’t pay its own income taxes. Instead, all of its income, losses, deductions, and credits pass through to you and every other member/investor. The K-1 is the form that tells the IRS (and your CPA) exactly what your share of all that looks like.
The confusing “loss”
Many first-time investors panic at this part.
You look at Boxes 1 and/or 2 (Business and rental real estate income/loss) and see a negative number. Your brain says: I’ve lost money. But your bank account may say otherwise, because you’ve been receiving quarterly (or even monthly) distributions.
So what’s going on?
The answer is likely depreciation. The IRS allows property owners to deduct the “wear and tear” on a building over time – even though the building is likely appreciating in value. When the syndication sponsor runs a cost segregation study (which accelerates that depreciation), the paper loss can be substantial in the early years.
That loss flows through to your K-1, and it can lower your tax bill.
Your investment is performing. The property is generating income. But the IRS sees the depreciation deduction and treats it as a loss – even when actual cash money is hitting your bank account and the property’s equity is growing.
This is one of the core reasons people invest in real estate.
“Late” K-1s are unfortunately normal
Your W-2 arrives in January. Your 1099s trickle in by mid-February. But K-1s? They routinely arrive in March…or later.
Don’t worry though, this is normal. The deal’s tax return has to be prepared first, and that takes time. It’s not a sign that something is wrong, but K-1s that take until the summer to arrive can be a sign of inefficient operations on the sponsor’s part.
If it looks like your K-1s will arrive after you planned to file your taxes, you have two options:
Wait to file until you have it. If you typically file in March or early April, just hold off a couple weeks, assuming the sponsor expects to have it to you before April 15.
File an extension (Form 4868). This gives you until October 15. Note that an extension to file is not an extension to pay – so check with your CPA to ensure you don’t need to make any payments by April 15.
Most experienced syndication investors preemptively file extensions every year. It’s routine, free, and keeps you covered if a K-1 arrives late.
What to actually do with it
Don't try to file this yourself. If you’re receiving K-1s, you’ve outgrown TurboTax. K-1s interact with passive activity rules (which affect how much of a loss you can actually use in a given year), at-risk limitations, and state filing requirements that vary by where the property is located. Hand it to a CPA who understands syndications.
Tell your CPA you have K-1 income. If this is your first year with a K-1, give them a heads-up early – ideally before your K-1 even arrives. Say: “I invested in a real estate syndication in 2025. I'll be receiving a K-1 from [entity name]. It will likely show a passive loss from depreciation.”
Don’t panic about the loss. Now you know what it means.
Ask your CPA about state filing requirements. If the property is in a different state than where you live, you may need to file a return in that state too. Your CPA will handle this, but it’s good to know it’s coming.
One important disclaimer
I’m not a CPA, and I’m certainly not your CPA. Every investor’s tax situation is different, and nothing in this newsletter is tax advice. Work with a qualified professional who understands your full financial picture.
What I can tell you is that the K-1 is not something to fear. It’s actually evidence that your investment is doing exactly what it’s supposed to do – generating income and tax benefits simultaneously.
That’s the whole point of this asset class.