The IRS reminded taxpayers on 14 October 2026 that the deadline for anyone who had extended their 2025 federal return is 15 October. For an Indian client with a stake in a US property partnership, that date can arrive as a surprise, because the document behind it is a K1 form that reached the client months after the deal closed. Whether a client ever receives that form, or a Form 1042-S instead, is settled long before tax season by the way the investment is structured.
That makes structure the first question an advisor should ask. A partnership passes its income through to each investor and sends a Schedule K-1, which can leave a non-resident client with a US tax return to file every year. A US corporation placed between the client and the property, known as a blocker, pays US tax itself and reports dividends on Form 1042-S, which usually ends the client's US filing there. The guide to US commercial real estate for advisors shows where these forms sit in a private deal.
What a K1 form reports and who sends it
Schedule K-1 is the statement a US partnership gives each partner after its tax year ends. It shows the partner's share of the partnership's income, gains, losses and deductions, whether or not any cash was paid out. When a private US property deal is organised as a partnership, or as a limited liability company taxed as one, every investor is a partner and receives a K-1 each year.
Under US tax regulations, a non-resident who is a member of a partnership engaged in a US trade or business is treated as engaged in that business too. The IRS lists exactly that situation among the cases in which a nonresident must file a US return, the Form 1040-NR. Rental income from US property is usually treated as connected with a US business, and gains on selling US property generally are, according to a note from the accounting firm EisnerAmper on foreign investors in real estate funds.
The partnership must also withhold US tax on the share of that income allocated to each foreign partner, under section 1446 of the US tax code, and send the partner a Form 8805 showing what was withheld. According to the IRS page on partnership withholding, a foreign partner can take credit for that tax only by attaching Form 8805 to a US income tax return. A client who holds a K-1 and files nothing leaves the withheld tax unclaimed and the filing requirement unmet.
Why the October deadline catches K-1 investors
A K-1 is prepared alongside the partnership's own return, and the IRS allows businesses an automatic extension of generally six months to file that return. A client cannot complete a US return without the K-1, so a late K-1 often means the client must extend as well. The IRS says a nonresident without US wages generally files by the 15th day of the sixth month after the tax year ends, which is 15 June for a calendar year, and the deadline for extension filers this year is 15 October 2026.
The IRS added in the same notice that an extension to file is not an extension to pay. EisnerAmper also points out that the filing obligation can include state and local returns where the property sits. For a resident Indian client with no US adviser, a K-1 means a second tax system to manage every year, in a second currency, for as long as the investment lasts.
How a blocker corporation leads to a Form 1042-S
A blocker corporation is a US company placed between offshore investors and the property interest. The property income lands inside the corporation, which files its own US return and pays US corporate tax on that income. According to EisnerAmper, the blocker stops the effectively connected income at the corporate level. What reaches the client is a dividend from a US corporation rather than a share of partnership income.
Dividends paid to a foreign person are reported on Form 1042-S, which the IRS's 2026 instructions for Form 1042-S say must reach the recipient by 15 March of the following year. US tax on such dividends is generally withheld at 30 per cent of the gross amount unless a treaty lowers it. Under Article 10 of the India-US tax treaty, US tax on dividends paid to an Indian resident individual cannot exceed 25 per cent of the gross amount. The client claims that rate by giving the withholding agent a Form W-8BEN, a short form confirming that the client is not a US person and is resident in India.
Because the tax on the dividend is settled through withholding, the client generally has no US return to file. The IRS says a nonresident with US income outside a trade or business must file only when withholding at source did not satisfy the tax. Offshore investors who invest through Raveum hold their interest through a blocker of this kind and typically receive Form 1042-S, not a K-1.
The blocker has a cost of its own. The corporation pays US tax before any dividend is declared, and the dividend then bears withholding, so the same income is taxed twice on the US side. Whether that trade suits a client depends on their wider position.
The Indian side of the same investment
The Indian paperwork starts before either US form exists. A resident client sends the money under the Liberalised Remittance Scheme, which allows up to USD 250,000 per person each financial year, and the bank collects TCS under Section 394 of the Income-tax Act, 2025 on investment remittances above ₹10 lakh in a tax year. For example, a client who remits ₹40 lakh for a US investment in tax year 2026-27 has TCS of 20 per cent collected on the ₹30 lakh above the threshold, which is ₹6 lakh, and claims it against their Indian tax. The guide to TCS on foreign remittance explains how that credit is tracked.
Each year, the client discloses the US holding in Schedule FA of the Indian return, and the income shown on the US form is also taxable in India. Article 25 of the treaty requires India to allow a deduction from Indian tax for US tax paid on income the US may tax, capped at the Indian tax on that income. The Form 1042-S, or the Form 8805 for a partnership investor, is the document the client's CA relies on for that claim, so it has to reach the CA before the Indian return is filed.
Risks the tax forms do not show
Neither form says anything about whether the investment itself will work. Private US real estate carries the risk of losing capital, and the money is illiquid, often for several years, with no certain way to exit early. Property values can fall, tenants can leave, and distributions may be reduced or not paid at all. Borrowing at the property level magnifies losses, the rupee value of any dollar income moves with the exchange rate, and a client who holds a single deal is exposed to one property and one sponsor.
What advisors should check before a client invests
The most useful question is a plain one, namely what legal entity the client will own and which tax form it will send. The offering documents answer it, and a sponsor should be able to answer it in a sentence. The checklist for vetting US sponsors covers the wider questions, but the tax form deserves its own line on that list because it decides whether the client takes on a US filing obligation.
If the answer is a partnership and a K-1, the client needs a US tax preparer, a US tax identification number and a plan for extensions before the first K-1 arrives. If the answer is a blocker and a Form 1042-S, the client needs a correct W-8BEN on file before the first dividend, so that the treaty rate applies. In both cases the CA should know which document to expect and when, so that the Indian return is not filed without it.
Advisors who introduce eligible clients through Raveum's partner page will see the blocker route in practice. Raveum handles KYC, the investment agreements and the US tax forms, while the client's Indian tax position stays with the client and their CA, and the advisor's judgement on suitability stays central.
The 15 October deadline will come round again next year, and so will the 15 March date for Form 1042-S. Neither date should be the moment a client learns which form they hold. The form follows the structure, the structure is fixed on the day the client signs, and so the question belongs at that point too. The guide to US commercial real estate for advisors sets out the wider context for that conversation.
Frequently asked questions
What is a K1 form used for?
A K1 form, or Schedule K-1, reports a partner's share of a US partnership's income, gains, losses and deductions for the year. The partnership sends it to each partner, who uses it to prepare their own tax return. It is issued whether or not the partnership paid out any cash during the year.
Does a non-resident Indian investor who receives a K-1 have to file a US tax return?
Usually, yes. US regulations treat a non-resident partner in a partnership engaged in a US business as engaged in that business, and the IRS requires such a person to file Form 1040-NR. Filing is also the only way to claim credit for the US tax the partnership withheld, which appears on Form 8805.
What is the difference between a K-1 and a Form 1042-S?
A K-1 reports a partner's share of partnership income, which is then taxed on the partner's own US return. A Form 1042-S reports income paid to a foreign person, such as a dividend from a US corporation, together with the tax already withheld. The first usually creates a US filing obligation, and the second usually does not.
Why do offshore investors use a blocker corporation for US real estate?
A blocker is a US corporation that holds the property interest and pays US corporate tax on its income. Offshore investors receive dividends reported on Form 1042-S, with tax withheld, and generally do not need to file a US return. The trade-off is that the income bears corporate tax before any dividend is paid.
Can an Indian resident claim credit for US tax withheld on a Form 1042-S?
Article 25 of the India-US tax treaty requires India to allow a deduction from Indian tax for US tax paid on income the US may tax, capped at the Indian tax on that income. The client's CA uses the Form 1042-S as evidence and should confirm the claim and the forms required for that year.
Is a private US real estate investment suitable for every client?
No. Private US real estate is illiquid, can lose capital and offers no certainty of distributions, and the rupee value of dollar income moves with the exchange rate. It is available only to eligible investors and suits clients who can leave money committed for years. The advisor and the client's CA should judge suitability case by case.
This article is for general education and is not tax, legal or investment advice. Rules change and depend on individual circumstances. All investing involves risk, including loss of capital, illiquidity and currency movements. Offerings on Raveum are available to eligible investors only and are not open to the general public.
