CrowdStreet and its affiliates do not provide tax advice. We encourage investors and prospective investors to consult with a tax professional prior to investing for more information.
What are W-9s?
As a part of the closing documents for each investment, you will complete a form W-9. This is an IRS form that the sponsor is required to collect and will be used for generating your applicable tax reporting documents. Therefore, it is important you read the instructions provided on the form carefully and complete it accurately.
For example, if you are investing through a disregarded entity such as a single-member limited liability company or a revocable trust, it is important you note this distinction, along with the regarded entity’s information. For more information on how the IRS views disregarded entities, please visit their website here.
If information is incorrectly reflected on the W9 form or within your Investing Account, sponsors may be unwilling to issue an amended tax form.
Please consult with your tax advisor to review the W-9 form to determine how it should be completed for your situation.
Do I need to file out-of-state tax returns and why?
You may have an out-of-state filing requirement in states where investments are made. When a taxpayer owns an indirect interest in real estate through a partnership (including an LLC classified as a partnership for tax purposes), it may result in a state income tax filing obligation for such taxpayer in the state where the real estate is located (even for nonresidents).
For investments held in states that do not assess income tax, or that have minimum filing requirements below your assessed income, out-of-state returns would not be filed. Please consult your tax advisor to determine what your state filing requirements are.
What is UBTI and will I have exposure to It?
For those who are not familiar, UBTI is an acronym standing for Unrelated Business Taxable Income.
The offerings found on our Marketplace employ debt financing, which means there could be UBTI exposure for investors.
Broadly speaking, ordinary income trade or business activity may be subject to UBTI. So if a developer treats income as ordinary income trade or business activity on their tax return, they can ultimately pass through the UBTI exposure to the investors in the particular offering, meaning the taxable income will flow down to the individual investors.
What is a 990-T and when do I need it?
When an IRA (and SD-IRA) invests in alternative investments, such as real estate investments, they may be required to file a 990-T Exempt Organization Business Income Tax Return when the investment generates UBTI (unrelated business taxable income). These returns are compiled at the IRA account level, not at the underlying investment level.
If it is necessary for an IRA to file a 990-T, it will generally be prepared by the IRA Custodian, based on the aggregate amounts reported on the K-1s provided by all investment vehicles. For Self-Directed IRAs, the investor or their tax accountant would prepare the form.
If you have invested in a Marketplace deal via an IRA account, please consult your IRA Custodian or tax advisor to determine what your 990-T filing requirements are.