When you invest in many types of real estate and equity crowdfunding offerings, what you’re actually receiving is not a direct ownership stake in the property or company, but rather a membership interest in a “special purpose vehicle” (SPV) set up for the investment, usually an LLC (though sometimes a Limited Partnership or other entity).
Schedule K-1 is the IRS form you’ll typically receive at tax time, which indicates any income (for example from interest payments or rental income) that you received from the SPV. The K-1 will also show what percentage ownership you have in the SPV.
In the case of some equity investments, you may receive a K-1, but it won’t report any income until/unless there’s some form of liquidity event like an acquisition. The IRS has more information on Schedule K-1, or you may wish to ask your tax professional for more details on the tax implications of investment crowdfunding on your particular situation.
Want to learn more but aren’t sure where to start? You can explore 114 crowdfunding investment platforms in our database and learn more about the nuts and bolts of crowdfunding and alternative investing on our blog. Did you know you can use a self-directed retirement account to invest in many alternative investments? Rocket Dollar makes it easy, and when you sign up using that link you'll be helping to support YieldTalk.