About Lex

State Income Tax Considerations

Partnership Income Tax Considerations

LEX structures the securities that our clients offer as publicly traded partnerships (PTPs) to give investors the tax benefits of direct commercial real estate ownership. While each individual taxpayer has unique circumstances, investing in PTPs can generally reduce your tax liability when compared to investing in other taxable income securities.

To enjoy these benefits, investors must include the information reflected in the Schedule K-1 they receive from each LEX issuer in their state and federal tax returns.

Another tax consequence of investing in a PTP is that investors must file tax returns and pay taxes in the state in which the underlying real estate property is located (the “PTP State”).  This is true even if the investor does not live in that state.

This does not mean that you will owe more taxes, just that you may owe state income tax on the income you received from your LEX investment to a different state than you expected.

Most states provide a tax credit for the tax paid to another state. For example, if your home state is Pennsylvania and you pay Georgia state income tax on the income earned from a PTP located in Georgia, Pennsylvania will give you a state tax credit for the taxes you paid in Georgia from that investment. This helps avoid double taxation at the state level.

This credit is generally for the amount of the state tax paid to the non-resident state (i.e. Georgia in the example above), or if the PTP State’s income tax rate is higher, then the credit is for the amount of tax you would have paid in your resident state.

You may not even need to file a tax return in the PTP State if either of the following circumstances apply:

  1. If the PTP State permits partnerships to file composite tax returns on behalf of their unitholders, the PTP may file such a return and pay the tax without its unitholders having to file anything in that state; or 
  2. If the PTP unitholder’s income earned in the PTP State is below the standard deduction in that state, the unitholder will not have to file anything in that state.

If you invest in a PTP through LEX, the PTP will inform you if it is filing a composite tax return on your behalf.

LEX Markets does not provide tax, legal or accounting advice. Potential investors are encouraged to consult with professional tax, legal, and financial advisors before making any investment into a securities offering. This investment may not be suitable for all investors. Distributions and liquidity not guaranteed. Property performance and performance of property tenants not guaranteed. Diversification does not eliminate the risk of experiencing investment loss.

November 15, 2022

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