By Dr. James M. Dahle, WCI Founder

One of the big deterrents for white coat investors to invest in private real estate investments, such as private funds and syndications, is that they have to deal with the tax form known as the “K-1” when it comes time to file taxes. K-1 is derived from Schedule K on IRS Form 1065, the Partnership Tax Return form. Investors wonder if the K-1s will arrive on time, or if they will have to file an extension. They wonder if they will be required to file in multiple states. They also wonder how much depreciation they really get, especially in the first year during these “first-year accelerated bonus depreciation” years (2022 is the last year of that, barring a change in the law.) Let's answer some K-1 questions today and, even better, use some of my own personal investments to show you the truth behind this K-1 game.


Will I Have to File Extensions?

The answer to this one is easy. Yes, you will almost surely have to file a tax extension every year that you invest in these private investments. Just plan on it. You might get lucky, but you probably won't. For tax year 2021, we will be getting 22 K-1s. Seventeen of them came by April 15, leaving five that had not arrived. You may be busy the week of April 15, and if you're paying someone else to prepare your taxes, I can assure you that they're busy. An extension is easy to do and worthwhile even if you don't have to do it. Your taxes are still supposed to be paid by April 15, but you can have up to six more months to actually file the paperwork.

More information here:

Real Estate Investing 101


Will I Have to File in Multiple States?

The answer to this one is also probably yes. It is possible to avoid this, but you have to be very selective in your investments. If you only invest in syndications and funds that invest in a limited number of states, you could avoid filing in multiple states. What states can you invest in and be OK?

#1 Your state

#2 Any other state you already have to file in for whatever reason

#3 Income tax-free states

  • Alaska
  • Florida
  • New Hampshire*
  • Nevada
  • South Dakota
  • Tennessee
  • Texas
  • Washington*
  • Wyoming

*Washington taxes capital gains above and beyond $250,000 a year. New Hampshire taxes investment income for 2022 but won't in 2023.

#4 States that allow a composite return to be filed (and for which the investment actually files a composite return)

  • Alabama
  • Arizona
  • Connecticut
  • Delaware
  • District of Columbia
  • Idaho
  • Massachusetts
  • Michigan
  • Nebraska
  • New Hampshire
  • New York
  • North Dakota
  • Oklahoma
  • South Carolina
  • Tennessee
  • Texas
  • Utah
  • Vermont
  • Wisconsin

Note that composite returns generally make you pay taxes at the top tax bracket. If you're not in the top tax bracket for that state, a composite return can actually cost you more money. Only you can decide if that additional cost is worth the savings of the cost and hassle of filing a return in that state.

What states are left that you want to avoid investing in if you are hoping not to file multiple state returns (unless you are already filing there)? It leaves the following states:

  • Arkansas
  • California
  • Colorado
  • Georgia
  • Hawaii
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • Maine
  • Maryland
  • Minnesota
  • Mississippi
  • Missouri
  • Montana
  • New Jersey
  • New Mexico
  • North Carolina
  • Ohio
  • Oregon
  • Pennsylvania
  • Rhode Island
  • Virginia
  • West Virginia

That's a lot of states to avoid. This may be the classic example of letting the tax tail wag the investment dog. Keep in mind that even if you have investments in these states, you may not have to file. With real estate investments, you often have tax losses for many years. No taxable income (or below a certain minimum in that state) = no need to file.


When Do K-1s Actually Show Up?

Partnerships are required to file their returns by March 15. They don't have any K-1 to send you until they prepare their taxes. To be honest, most of them wait until the very end to file, which means they don't even think about sending out K-1s prior to March 15. Those partnerships that are actually “on the ball” send the K-1s out in the last half of March. However, partnerships are allowed to extend their tax return, just like you are. They can extend from March 15 all the way to September 15, which means it's entirely possible you won't get a K-1 until late September and that you will be scrambling to get your extended return in by your deadline of October 15.

k1 real estate taxes

The latest K-1s are often from those real estate investments that are a combination of investments from other sponsors. Basically, your partnership is waiting on other partnerships to do their returns before they can even start your partnership return. This is often the case with real estate funds that invest with multiple sponsors, access funds, and investments bought off of crowdfunding platforms. For tax year 2021, this is when my K-1s actually showed up:

Earned Income K-1s

  • WCI (2): March 10
  • Physician Partnership: April 8
  • 2nd Physician Partnership: April 12
  • Physician on FIRE: April 14
  • Passive Income MD: September 20 (Draft K-1 sent on April 17)
  • The Physician Philosopher: March 8

Unearned Income K-1s

  • DLP Housing Fund: March 15
  • Arixa Secured Income Fund: March 16
  • Unnamed Debt Fund: March 21
  • 37th Parallel Syndication: March 25
  • AlphaFlow: March 30
  • MLG Fund IV: March 31
  • RealtyMogul Syndication: March 31
  • 37th Parallel Fund I: April 5
  • Physician office building syndication: April 8
  • CityVest DLP Access Fund: April 14
  • Origin Income Plus Fund: April 14
  • Equity Multiple Syndication: May 25
  • Unnamed Equity Fund: June 21
  • Alpha Investing Fund:  July 3
  • Origin Fund III Fund: September 10 (Draft K-1 sent April 7)

Now, these dates do vary by year. Some years, they're later, and other years, they're earlier. I do appreciate the ones that send draft K-1s. Even though I still can't file my taxes until I get the final one, at least I can use it to estimate how much tax I will owe if they get the draft to me before April 15.

More information here:

The Case for Private Real Estate


Taxable Income and Depreciation by Investment

Over the years, we have invested personally with most of the real estate partners that The White Coat Investor has worked with. Before I take you on a tour of my own K-1s, take a look at who we'd recommend.

Featured  Real Estate  Partners

DLP Capital
DLP Capital
Type of Offering:
Primary Focus:
Minimum Investment:
Year Founded:

Origin Investments
Origin Investments
Type of Offering:
Primary Focus:
Minimum Investment:
Year Founded:

37th Parallel
37th Parallel
Type of Offering:
Fund / Syndication
Primary Focus:
Minimum Investment:
Year Founded:

SI Homes
Southern Impression Homes
Type of Offering:
Primary Focus:
Single Family
Minimum Investment:
Year Founded:

Wellings Capital
Wellings Capital
Type of Offering:
Primary Focus:
Self-Storage / Mobile Homes
Minimum Investment:
Year Founded:

MLG Capital
MLG Capital
Type of Offering:
Primary Focus:
Minimum Investment:
Year Founded:

Mortar Group
Type of Offering:
Primary Focus:
Minimum Investment:
Year Founded:

Type of Offering:
Primary Focus:
Minimum Investment:
Year Founded:

* Please consider this an introduction to these companies and not a recommendation. You should do your own due diligence on any investment before investing. Most of these opportunities require accredited investor status.


OK, I thought it might be instructive to go through each of these unearned income K-1s and show what they end up looking like as far as income and depreciation. I know this would have been interesting to me when I was deciding whether to invest with someone. One of the big benefits, at least of the equity investments, is to get income that isn't taxed, at least in that same year. The income is sheltered by depreciation.


DLP Housing Fund

This is an equity investment of just over $250,000 that I made halfway through 2021. It paid me income of $16,687, all of which I reinvested. There were K-1s from Georgia, Indiana, New Jersey, New York, Pennsylvania, and West Virginia included, but there was no taxable income allocated to any of those states. The K-1 looked like this:


That's $16,687 in income—only $551 of it taxable—and no requirement to file in any other state. Hard to complain about that.


Arixa Secured Income Fund

This is a debt investment I made in mid-2018 with $75,000. I've been reinvesting all of the income over the years. It included K-1s for California, New Jersey, and Pennsylvania, but no taxable income was allocated to those states. For 2021, the fund paid us $6,590.

Arixa K-1

As a debt investment, this is obviously not very tax-efficient, although the income does qualify for the 199A deduction, as you can see in Box 20 code A. The entire return is paid out each year and is fully taxable at ordinary income tax rates. I'm working on moving our debt real estate into tax-protected accounts as much as possible.


Unnamed Debt Fund

This is a $250,000 investment I made in mid-2020 and where I reinvest all the income. I'd love to have this fund as an advertiser on the site, but they don't want to advertise and they don't even want me to tell you who they are! No state K-1s in this one.

Unnamed Debt Fund

Similar deal to the Arixa fund above. Not tax-efficient but it does qualify for the 199A deduction. It's interesting that one fund reports the income as interest and the other as ordinary dividends, but tax-wise, it's really all the same.


37th Parallel Syndication

This is an apartment building syndication in Fort Worth that I bought $100,000 of in early 2018. It pays dividends quarterly. Since it's in Texas, there are no state K-1s. In 2021, it paid me $2,513.

37th Parallel Syndication

This one is awfully tax-efficient. That's $2,513 of income that I don't have to pay taxes on this year. Plus, there's even more of a loss I could apply elsewhere if I wanted. 37th Parallel seems to be pretty aggressive about maximizing Bonus Depreciation, and it's probably a good place to go for an investment if you need a loss right away to offset passive income.



This is a company I've been less than happy with. It's a debt investment of $20,000 made in late 2017, but it decided, after a couple of years, it really didn't want to do what it originally planned to do (picking a diversified mix of debt investment “notes” for you off of the crowdfunding platforms while offering you pretty good liquidity). It started liquidating my investment in drips and drabs. More than two years later, I still don't have all my money back. Or maybe I do. I started the year with $7,109 still in there and ended it with $2,975. While distributions and “passive income” are great, having 26 different distributions in the year, some as little as $8, is annoying to keep track of. It's a lot like when I was exiting Lending Club and Prosper years ago. At least there were no state K-1s.

AlphaFlow K-1

Looks like the other debt funds (all interest income eligible for the 199A deduction) but with a little capital loss. I suspect there will be more of those next year as all the notes I still own are delinquent at this point. It'll be interesting to see what the overall return is on this one at the end, but whatever it is, it wasn't worth the hassle.



Although I started this equity fund investment at the end of 2020, 90% of the $250,000 I have in it wasn't invested until mid-2021. I had $4,527 in income for 2021. This K-1 ran 45 pages, including K-1s from Arizona, Florida (don't ask me, it's a “K-1 equivalent”), Georgia, Illinois, Iowa, Kentucky, Minnesota, New Mexico, North Carolina, Ohio, Oklahoma, Pennsylvania, Virginia, and Wisconsin. There was a tax loss in all of those states except Iowa, so I'll need to file in Iowa for this one, I believe. I guess the fund sold a property in Iowa or something.


See what I mean about bonus depreciation? A $250,000 investment gave me a $157,000 deduction. Too bad I can't use it any time soon. Like 37th Parallel, this is not a bad place to go for someone who needs a big passive income deduction this year.


RealtyMogul Syndication

This is an apartment building in Indiana that I bought $10,000 of in late 2014. It was sold in mid-2020. However, it paid out some additional money in 2021 and again in 2022, so maybe I get to keep filing in Indiana for that! Obviously, it comes with an Indiana K-1.

Realty Mogul K-1

This one is a good illustration of the hassle factor with private real estate investments. What does it cost you to pay someone to handle another K-1 and file in another state? At a certain point, smaller investments like $10,000 may not be worth it. This one is also interesting for some other reasons. First, it says I got a distribution of $1,095 in 2021. That's not true if you look at my bank account, at least in 2021. I only got a distribution of $98 in 2021, but I got another $984 in 2022, so I assume that is the rest of that distribution reported for 2021. But the really interesting thing is that despite the fact that I had this money sent to me later, I don't have to pay taxes on it. In fact, I had a taxable loss ($51) given to me for 2021. That's depreciation at work. I think I've only ever had to file in Indiana one year, the year it was sold.


37th Parallel Fund I

I started investing in this equity fund in early 2020, but it still hasn't called all the capital. That hasn't stopped it from paying out income, though. I got $2,513 in distributions in 2021.

37th Parallel Fund K-1

Typical equity investment. A few thousand dollars in income, none of which is taxable, and an even larger loss that I don't have enough taxable passive income to use—at least for now. Now you know why lots of people get excited about Real Estate Professional Status where you can actually use those losses against your ordinary income.


Physician Office Building Syndication

This is for our little partnership office building for my practice. It's pretty low-key. We don't even make distributions, because we just use the money it makes to pay down the mortgage. That's a little bit of a problem since we don't have enough depreciation to actually cover its profit. So, partners get taxed on phantom income with this one. But it's not much income. I have the maximum investment, and it's still only about $700 in taxable income.

Physician Office K-1


Most of the return is still tax-sheltered as this investment increased in value by much more than $700 in 2021.


CityVest DLP Access Fund

This is a debt investment of $100,000 made in early 2019. It was supposed to run just three years, but it had an optional one-year extension that it looks like the fund is going to take. No complaints from me. This year, it paid out $10,097. This one is interesting to me, because I later invested directly with DLP in the same fund. Investing directly gives you more frequent distributions, more liquidity, reinvestable distributions, and one less layer of fees. The K-1 also obviously comes a little faster. The downside? A much higher minimum investment ($200,000 vs $25,000). I keep the direct investment in a tax-protected account, so no K-1 there. This one includes K-1s from Georgia, Indiana, New Jersey, New York, Oregon, and Pennsylvania. However, there is no taxable income sourced to any of those states, so there's no need to file any additional tax returns for this fund.

CityVest K-1

One interesting thing about this K-1 is that I received distributions of $10,097, but I actually have to pay tax on another $102. Perhaps an accountant can better explain why, but my understanding is that some of what this fund earned (and thus has to pass through to the partners as taxable income) has not yet been distributed to me for cash flow purposes of the fund.


Origin Income Plus Fund

This is a fund of mostly equity but has more of an income focus than many of their funds. I purchased $100,000 of it in early 2020, and I have been reinvesting my distributions. It distributed $5,923 to me in 2021. The K-1 is only 33 pages, so it's not quite as big as MLG's, but it includes K-1s from Georgia, Indiana, Missouri, New Jersey, New York, Oregon, Pennsylvania, and West Virginia. No taxable income was sourced to any of those states, so no returns were required.

Origin IncomePlus K-1

The fund is not passing through a lot of losses to me to use elsewhere (not that I can really use them anyway), but it is covering almost all of its income with depreciation. It's a lot like the DLP Housing Fund that way but not like the MLG Fund and the 37th Parallel Fund, which passed through huge losses. Not sure if that's because Origin is doing the depreciation differently or just because these are older funds, but I find it interesting.


Origin Fund III

The Origin Fund was a $100,000 investment that called capital from the time of my investment in mid-2017 until the end of 2019 and then started distributing every time it sold a property, beginning in early 2020. At this point, I think it has distributed back the majority of its capital. It does not pay any regular income as it is focused on total return. So far, I haven't paid any significant taxes on anything this fund has ever made, but that will presumably change now that it is rapidly liquidating. It included K-1s for Colorado, Georgia, Illinois, North Carolina, and South Carolina. I think I only have to file in Colorado and Georgia this year because of it, and I already had to file in Colorado anyway.

Origin Fund III K-1

I received more than $64,000 in distributions but still had a tax loss of over $5,000. Some of those distributions were a return of capital—perhaps about half of them—but that's still pretty attractive from a tax perspective. I will have to pay taxes on $60 of interest, though, as the real estate losses don't offset that income.


Equity Multiple Syndication

Not much on this one. This investment will take a long time to explain. I'll do it eventually when it finally wraps up. At this point, it's just kind of on hold waiting for the deal to be completed to see what the investors get out of it.

Blank K-1

Kind of frustrating that it took until May 25 to send me a K-1 with nothing on it. I bet that took a lot of time to prepare.


Unnamed Equity Fund

This is a $250,000 commitment that started calling capital in mid-2021. As of the end of 2021, only about $76,000 had been called.

K-1 in Early Capital Call

Not sure why the depreciation deduction for this one was so low compared to some of the other funds. It may be that the money didn't get invested before the end of the year; I don't know. I expect a lot more on next year's K-1, but it doesn't really matter to me much. It was also interesting to see some ordinary business income too. Anyway, the moral of the story is that you shouldn't be surprised if the K-1 from your first year with an investment isn't quite what you expect.


Alpha Investing Fund I K-1

This is a $100,000 investment contributed in early 2020 but invested gradually over the next couple of years. Let's look at the 2021 K-1 first.

Alpha Investing K-1

Note the big depreciation deduction on line 2. That's pretty big for the second year of an investment, presumably because most of the investments were made in 2021. Also, notice the distributions total on line 19. Seems awesome, right? Invest $100,000 and get paid $19,000. But it's a little deceiving since more than $15,000 of it was the return of capital (plus profit) from a property that was sold early. Now, let's take a look at the K-1 from 2020.

Alpha Investing Fund I

Note that the distributions and the depreciation were much less in 2020. The interest income, however, was significantly more as the money in the fund sat in an interest-bearing note while waiting to be invested.

More information here:

The 3 Things That Matter Most with Private Real Estate


What's with All These Extra K-1s?

Note how many state K-1s I was sent that have no taxable income on them. It's intimidating to get these K-1s that are dozens of pages long, but that doesn't necessarily mean more state tax returns—at least for the first few years of an equity investment. Most debt investments do not require you to file in multiple states either. I find it really interesting to see K-1s being sent out for a few states from almost every partnership. These include New Jersey, New York, Pennsylvania, West Virginia, and Oregon. I don't even think most of these funds actually have investments in those states, but they must be required to send out the K-1s because some of the investors in the fund are residents of those states.  For example, the DLP Housing Fund invests in the following states:

DLP Housing Fund

Yet the fund only sent out K-1s from six states—including Indiana, New Jersey, and New York—where it doesn't even have any investments!

Same thing with the Origin Income Plus fund:

Origin Income Plus Geography

It is invested in seven states but sent out K-1s for eight states (Georgia, Indiana, Missouri, New Jersey, New York, Oregon, Pennsylvania, and West Virginia), none of which it actually invests in!


Can You Really Live Off Passive Income?

As you can see, there is quite a bit of “passive income” coming in here. The income from the equity investments is lower as a percentage of the investment, but it is far more tax-efficient than the income from the debt investments. You can see that the income, whether taxable or not, starts adding up after a while, especially for the larger investments. Not including the return of capital, there's enough income there to cover over half of our spending. Is that worth all the hassle of dealing with these K-1s and the costs of filing in multiple states? I think it is, but for me, it isn't really worth it for any investment of less than $100,000.

Only you can decide how much hassle it is worth for you.


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What do you think? Do you hate K-1s with a passion? How many do you deal with each year? Of all your first-world problems, is this your most annoying one? Comment below!