About the Schedule K-1
The Schedule K-1 is a tax document that reports each limited partner’s share of a partnership’s income, deductions, and credits. The Schedule K-1 tax form outlines your share of the partnership’s financial activities. It offers a detailed account of your portion of the partnership’s profits, losses, and various tax-related items.
Part I reflects the partnership (fund) information and the relevant fund tax identification number.
Part II addresses the investor information. This part contains information about the investor’s participation in the fund and how it may impact specific investor taxes.
Section J - Capital Percentages: This section reflects your beginning and ending share of profit, loss, and capital in the fund for the current tax year. The ending capital percentage represents your total ownership in the fund.
Section K - Partners Share of Liabilities: This section shows your share of the partnership's nonrecourse liabilities, partnership-level qualified nonrecourse financing, and other recourse liabilities at the beginning and the end of the partnership's tax year.
Section L - Partner’s Capital Account Analysis
Beginning capital amount: This number represents your beginning tax capital in the fund (i.e. cost basis).
Capital contributed during the year: This number reflects how much you invested in the partnership during the current tax year net of built-in gain (i.e. the cost basis of the stocks you contributed to the fund).
Current year net income (decrease): This is your share of taxable income/(loss), net of other certain items such as tax-exempt income and non-deductible expenses. This captures the difference between the realized income from dividends and capital gains, realized capital losses, tax-deductible expenses such as margin interest, and depreciation flow-through benefits.
Note: Your limited partner interest in the Cache Exchange Fund is a passive investment and is subject to limitations on current deductibility. Fund expenses and depreciation flow-through benefits create Passive Activity (tax) Losses, but these types of losses can only be paired with Passive Investment Gains from other private funds. An easy way to remember this rule is “PALs need PIGs.” Any unused passive losses can be carried forward on your tax returns and applied in future years.
Withdrawals and distributions: This number represents the total amount of principal and net interest distributions for the current year.
Ending capital account: This number can be calculated by adding up all the above, minus the distributions. It will be carried over into your following year K-1 and will be reflected as the Beginning Capital Account.
Section N - Partners Share of Net Unrecognized Section 704(c) Gain or (Loss): The ending value in this section is your total unrealized gain in the fund, which is the difference between the year-end value of your fund units (partnership interest) and the ending tax capital in Section L.
Part III addresses the Partner’s Share of Current Income, Deductions, Credits, and Other Items.
Interest Income: This is your share of interest income earned by the fund for the current year.
Ordinary Dividends: This is your share of dividend income received by the fund for the current year.
Qualified Dividends: Qualified dividends are dividends that meet certain requirements to be taxed at lower capital gain rates.
Other Information: Details for the respective codes can be found in the supporting schedules and footnotes.
Net Long-term Capital Gain (Loss): Realized gains or losses would be captured in this line item. Short-term gains would be captured in the short-term line item.
Foreign Taxes Paid or Accrued: This is your pro-rata share of foreign dividends received by the fund for the current year.
Interest Expense: Cache passes on interest from borrowings from the fund’s credit facility in the form of an investment interest expense deduction.
Other Deductions: There are other expenses incurred by the fund that need to flow through to the fund's investors. These expenses are reflected as other deductions.
Schedule K-3: This form reports items of international tax relevance from the operation of the partnership.
State K-1s: State K-1s are also generated. These may also include K-1s related to the fund’s real estate holdings and / or your state of residency. Please refer to the footnotes on the state K-1s to determine the applicability to your specific situation.
See more about how we manage the fund to limit taxable events.
The material presented herein is gathered from reliable sources. However, any official information from the IRS takes precedence over any information herein. For a complete list of information related to Schedule K-1, please visit the IRS’s website, including https://www.irs.gov/forms-pubs/about-form-1065.
It is not guaranteed to be accurate, may not be a complete discussion of all material facts, and is not intended as the primary basis for investment decisions. All content is for general informational purposes only and does not take into account your circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Content is not intended to provide legal, accounting, tax, or investment advice. Cache assumes no liability for any tax consequences as a result of this material, which is purely educational in nature.
Cache Advisors LLC is the advisor to the Cache Exchange Funds and is an Investment Advisor registered with the SEC. Registration with the SEC does not imply a certain level of skill or training. Cache Securities and Cache Advisors are affiliated and under the common control of Cache Financials, Inc - “Cache”. Investments are available only to residents of the United States in jurisdictions where Cache is registered.
Please see our disclosures before making any investment decisions.