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What is pass through income? Why am I getting a K-1?

So you decided to go into the real estate business with your childhood best friend and form a partnership. A partnership can take on various legal forms including, but not limited to an LLC (Limited Liability Company) or and LP (Limited Partnership).

One of the first things you must decide when you form a partnership is how much money you are going to get out of the deal. You and your partner should come up with a partnership agreement that says in detail who gets what. When tax time comes around, you will need to file a Form 1065 on behalf of your partnership.

The partnership itself doesn’t pay income tax, all of the profits and losses get passed through to the partners . This is called pass-through income. As a part of the Form 1065, a form called a Schedule K-1 is prepared and given to each partner showing their cut of the profits and losses from the partnership. You will need to report this info on your own return on page 2 of Schedule E.

You can enter the information from your Schedule K-1 on Credit Karma Tax here.

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