It is important to understand the exact mechanism by which you own the underlying property, because different structures have different tax treatments.
1099 forms are very common in real estate investing for tax purposes. Most properties are held by a LLC holding entity, even if there is only one owner of the LLC.
DAO LLCs are pass-through entities, which means the entity itself doesn’t pay taxes, but passes on the responsibility to its owner(s) instead.
As an active user on the Lofty platform (meaning you own at least 1 property token), you will receive a SINGLE 1099 tax form that aggregates all of your rental income, capital gains/losses, and staking income across all the different properties you've invested in. We will also provide summaries and breakdowns of your transactions and earnings per property, but these are for your own records. They are not official tax forms. You will personally need to file this 1099 form and that's all the tax work you need to do for your real estate holdings on the Lofty platform.
If you exclusively stake USDC in liquidity pools on the platform, but do not own or invest in real estate, you do not need to KYC. If you do not have a KYCed account with Lofty, you will be responsible for tracking and filing your own taxes on the income and gains/losses derived from your staking activity.
The DAO LLC partnership must produce and file a form called the Form 1065. This basically summarizes the income and expenses incurred by the partnership for the tax year and how much profit/loss it has made as a whole. Instead of the partnership paying the taxes on its profits directly, it passes the responsibility to its members. Those members would pay their pro-rata portion of the partnership’s profits.
Your Form 1065 is sent to the U.S. Internal Revenue Service (IRS), but is not sent to other countries or international agencies.
Example:
Imagine a partnership had 10 members. After accounting for all the revenue and expenses incurred during the operation of the partnership for the tax year, the final profit was $100 on paper.
If one of the partners owned 10% of the partnership, they would be entitled to 10% of the partnership’s profits, which would be $10 in this case.