subsequent closing interest on K-1 not included in box L or income o n the face of the k-1 either

Forum|Forum|9 months ago
September 26, 2025
1 reply
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I have an investor K-1 with subsequent closing interest received not included in box L, so its not included in income or capital and basis. This looks to be when an investment fund adds new partners in after the initial closing and that change in investment from initial closing to the new investor admitted is the closing interest being reallocated between partners so the end result is the new investor was in since the initial date. Does anyone know what to do on the investor 1040 with it does it belong in income and capital or just an adjustment to capital as its supposed to be a reallocation between partners made by the underlying fund.

Lacerte Tax

sjrcpa

Level 15

Are you talking about a change in ownership percent?

Or an interest equalization payment to an owner?

The more I know the more I don’t know.

G

gn86_2Author

Level 4

Hi I think this is more like an equalization reallocation from new investors to the original investors to bring everyone up to date as if they were all invested from day 1 so its not included on the face of the k-1 in income or expense nor is it in box L on the k-1 either its a footnote disclosure. Are you familiar with how to treat this on the investor 1040? Is it both an adjustment to income and capital or just an adjustment to capital?

sjrcpa

Level 15

Is it additional money received by some owners from other owners?

What precisely does the footnote say?

Something like this?

The distributions generated by the fund and wired to your account in 2024 was $XXXXX. In addition, you also received $YYYYY of equalization payments during the year. This is attributed to investors coming into the fund late, and paying interest for the right to do so.

Your K-1 will document the $XXk of distributions, but also includes a footnote explaining the additional $YYk. Footnote says:

IN ADDITION TO YOUR INCOME REPORTED ON SCHEDULE K-1, YOU HAVE RECEIVED ADDITIONAL PAYMENTS PROM THE ADMISSION Of NEW PARTNERS. PLEASE CONSULT YOUR TAX ADVISOR: $YYYYY

The more I know the more I don’t know.

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