Tax season is finally here! I’m not sure everyone is quite as enthusiastic about tax filing and compliance as we are, but hopefully this article provides a 2021 tax outline roadmap for real estate investors to better equip themselves for a successful tax reporting for the current and future reporting years.
Throughout the 2021 tax year, tax estimates may have been distributed to you or your investment advisor (or both). As a passive investor, this will be a key starting point in understanding what your tax exposure looks like for 2021. For current MLG investors, the information provided in this blog is subject to and does not alter any investment agreement with MLG.
As a real estate investor, capital gain from property sales is usually one of the bigger highlights from the reporting year for your tax position. One key item to look for on your estimates would be any capital gains being passed through to you. As a reminder, long-term capital gains (1231 Gains on an MLG K-1) are taxed at more favorable rates than ordinary income. The table below shows the various tax rates based on taxable income for individuals:
If any capital gains are included in 2021 tax estimates, please consult your tax advisor to ensure appropriate steps are being taken for tax purposes.
Passive income or loss estimates are another vital piece to consider for your 2021 tax planning. Work with your tax preparer to review the impact the passive income or loss estimate will have on your 2021 projections. Some items to discuss would be:
- Passive loss carryforwards applied in 2021
- Excess business loss limitations related to trade or business activity
- Suspended losses that could offset capital gains.
Once estimates have been received and culminated into your 2021 tax picture, it is key to understand when your Federal and State K-1s will be distributed to you. Note: for MLG Private and Dividend Funds, we target our K-1 distribution by the end of March each year. Timing of this crucial tax form can dictate whether an extension on your returns is necessary before the Federal deadline of 4/15/2022 and various state deadlines. If you expect K-1s from outside investments to come in later than this timeframe, please consult with your tax preparer to develop a strategy for making sure extensions are timely filed. Failure to file returns timely may result in penalties.
For MLG investors, a few relevant extension dates are as follows:
- Wisconsin:
- If your Federal return has a valid extension, your Wisconsin return will be automatically extended through October 17, 2022
- Minnesota:
- Extension Due: 4/18/2022 (Extends return through October 17, 2022)
- Note: Minnesota tax return is only required if you expect to owe Minnesota tax – please consult with your tax advisor
- California
- Extension Due: 4/18/2022 (Extends return through October 17, 2022)
- Note: California tax return is only required if you expect to owe California tax – please consult with your tax advisor
- Illinois
- Extension Due: 4/18/2022 (Extends return through October 17, 2022)
- Note: An Illinois tax return is only required if you expect to owe Illinois tax – please consult with your tax advisor
Please visit your state’s Department of Revenue (or equivalent) website for relevant tax information. Please note that these dates may not be the same year-over-year, please consult with your tax advisor.
Tax season does not need to be a headache. Appropriate planning and discussions with your tax advisor will assist in making your 2021 tax filings worry free. For current MLG investors, please do not hesitate to reach out to our fantastic Investor Relations team with any questions. If you’re interested in investing with us, look to our current Private Fund offering.
Tyler Taves is the Senior Compliance Manager at MLG Capital, with a primary focus on MLG’s Fund and REIT tax compliance. When he has time, between his daily reading of the Internal Revenue Code, he makes his annual attempt at catching the largest trout in Northern Wisconsin.
The information contained in this article (this “Article”) is for informational purposes only and is qualified in its entirety by reference to any confidential private placement memorandum for an investment with MLG, a copy of which is available upon request and should be reviewed before investing. This Article is not an offer to sell interests in a security. Offers to sell interests in a security can only be made to a qualified purchaser by the delivery of the appropriate disclosure documents accompanied by a Subscription Agreement or property Contribution Agreement and associated documents. An investment with MLG is subject to the terms of a cash subscription agreement, property contribution agreement or similar agreement to be entered into between the investor and such investment vehicle. The contents of this Article should not be considered as business, legal or tax advice, and each prospective investor should consult its own business advisor, attorney and tax advisor regarding an investment.
