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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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I would like to ask a very specific question regarding my filing

Resolved Question:

I would like to ask a very specific question regarding my filing for bankruptcy. Here is my situation:

I own a duplex, and live in one half of it. It was purchased by me and the title is in my name. My mother also has a duplex, which was

purchased by her and is titled in her name.

Together we have a partnership. The rents from both duplexes are considered as income for the partnership and are listed on our

partnership's tax returns. In addition, the expenses for the duplexes are listed as expenses on the partnership's tax return. Both my

mother and I get a Schedule K for the Partnership, which we then file as an income/loss on our personal tax returns. Overall, our expenses

and incomes from the duplexes are in separate accounts from our personal accounts, although we have, on occasion had money moved in and out

of the accounts as necessary for expenses, either business or personal.

And here comes the crux of my question.. should I:

#1) count the income (and possibly expenses) of both of the duplexes as income on my application for bankruptcy and counting toward the

means test?

#2) Count the income (and possibly expenses) of just the duplex in my name as income on my application for bankruptcy and counting toward

the means test?

#3) Count just the result of the Schedule K as income/expenses on my application for bankruptcy and counting toward the means test?
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 1 year ago.
Hi - my name is XXXXX XXXXX X'm a Bankruptcy attorney here to assist you.

1) When you referred to Schedule K, did you mean Schedule K-1?
2) Is the partnership owned 50/50 by you and your mother? In other words, are both of you entitled to 1/2 of the partnership's net income?

Customer: replied 1 year ago.
#1) Yes, sorry.. I meant K-1.

#2) No, I'm listed as a 99% partner, and she's listed as a 1% partner. We actually did this so that I could take the tax deduction every year on both duplexes. Each year our tax returns have the income and then expenses and losses from each duplex. Between the expenses and the depreciation on each property, we take a loss each year.
Expert:  cfortunato replied 1 year ago.

Thank you for your response.

 

Given the information you provided, you would enter your share (99%) of the partnership income and also your share (99%) of the partnership expenses. Since the expenses are greater than the income, you would have to enter zero for the rental income, as one is not allowed to enter a negative number for rental income for the Means Test.

Assuming that these amounts (99%) are what is entered on your Schedule K-1, then the answer to your question is #3 - the income and expenses listed on your Schedule K-1.

 

I think this is what you wanted to know. If not, please let me know.

Thank you.

Customer: replied 1 year ago.
I think this is what I need.. but I would like to clarify something. On the B7 form "Statement of Financial Affairs", question 1 asks "State the gross amount of income the debtor has received ... from the operation of the debtor's business ... from the beginning of this calendar year... "

Does this mean I should list all of the income from the rents from the properties (well.. 99% of them).. or should I list nothing?

In effect, I'm checking this: My impression is that the gross income of the *partnership* is the rents received. But since I've personally received none of that money (expenses were higher than income and my K 1 reflects that loss) then I should put no income from the partnership. Is that correct? (And do I put the loss in there, or can I not put a negative number in that section?)
Expert:  cfortunato replied 1 year ago.

Your gross income from your business is zero. The rents received are the business "receipts", not the business income. (Gross income is what you receive personally from the business, before deducting income tax.)

So - yes, there should no gross income listed on the Statement of Financial Affairs (SOFA).

And no - you should not put a negative amount on the SOFA.

cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience: Bankruptcy professor.
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