Why is my investment showing a loss on my K-1?

The K-1 provided for your investment may show a loss due to a number of factors. The primary factor of losses is accelerated depreciation. This is common in first year K-1s, especially for Equity investment opportunities.

For Equity Deals, it is common for these investments to pick up net real estate losses and can be a tax benefit to investors. It is not an indication of performance. This is considered a tax loss as opposed to a real loss.

What is Accelerated Depreciation?

Accelerated depreciation is a method used in accounting and taxation to allocate the cost of an asset over its useful life for the purpose of calculating depreciation expenses. Unlike straight-line depreciation, which allocates the cost evenly over the asset's useful life, accelerated depreciation allows for larger deductions in the earlier years of an asset's life. This can reduce taxable income and provide a financial benefit in the short term.

Under accelerated depreciation, a higher percentage of the asset's cost is depreciated in the early years, and the depreciation expense decreases gradually over time. This approach assumes that assets are more productive and efficient in their early years.

Accelerated depreciation can provide advantages to businesses by accelerating the recovery of an asset's cost and improving cash flow in the initial years. However, it's important to note that the total depreciation expense over an asset's useful life remains the same regardless of the depreciation method used. The difference lies in the timing and distribution of the deductions.

It's worth mentioning that tax laws and regulations regarding depreciation can vary across jurisdictions, and investors should consult with tax professionals or accountants to ensure compliance with applicable rules and optimize their depreciation strategies.

This material is confidential and has been prepared solely for the information of the intended recipient and may not be reproduced, distributed, or used for any other purpose or shared with anyone in any form or format. This has been prepared for you by EM Advisor, LLC (“EquityMultiple”), an SEC registered investment advisor. Information within this report may have been provided by third-parties, including images displayed, and, while EquityMultiple believes this information to be accurate, EquityMultiple has not independently verified such information. Reference to registration with the Securities and Exchange Commission (“SEC”) does not imply that the SEC has endorsed or approved the qualifications of the firm or its respective representatives to provide any advisory services described on the report or that the Firm has attained a level of skill or training. Investments in securities are not FDIC insured, are not bank guaranteed and may lose value. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Additionally, investments may not achieve stated social, environmental, or similar objectives. Before investing, consider your investment objectives and EquityMultiple charges and expenses. EquityMultiple advisory services are designed to assist clients in achieving discrete financial goals. They are not intended to provide financial planning with respect to every aspect of a client's financial situation, they do not incorporate investments that clients hold elsewhere, and they do not provide tax advice. Past performance does not guarantee future results, and the likelihood of investment outcomes are hypothetical in nature. For a comprehensive view of EquityMultiple's track record, please visit equitymultiple.com/track-record. Nothing in this presentation constitutes an offer, solicitation of an offer, or advice to buy or sell securities in jurisdictions where EquityMultiple is not registered. Unless and until the material terms of any potential transaction, if any, are agreed upon and both parties sign a written agreement reflecting such terms, it is not the sender’s intent for our email exchange to constitute a binding agreement. All rates or return or IRR are net of fees unless explicitly stated otherwise. EquityMultiple’s Form ADV can be found here: https://adviserinfo.sec.gov/firm/summary/314402.