How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Brenda Guy Your Own Question

Brenda Guy
Brenda Guy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 151
Experience:  20 years of working with income and estate tax issues for families and businesses.
52047106
Type Your Tax Question Here...
Brenda Guy is online now
A new question is answered every 9 seconds

On the balance sheet of a partnership tax return (i.e. IRS

Resolved Question:

On the balance sheet of a partnership tax return (i.e. IRS form 1065) can I have a negative balance in "Partners' Capital", and why? Also, is "Partners' Capital" the same as the total of the Partners' basis in the partnership?
Submitted: 3 years ago.
Category: Tax
Expert:  Brenda Guy replied 3 years ago.

Yes, you can have negative partner capital on a partnership tax return. Capital and basis are not the same. The capital is an accounting concept. Basis is a tax concept. Your basis consists of what you put in plus earnings less losses and distributions. Basis also includes your share of the partnership debt. Basis cannot be negative because you cannot deduct losses if your basis is 0. So those losses are included in the capital calculation but are suspended for basis.

Customer: replied 3 years ago.

I think I got it.

 

If, for example, there are two partners each of whom share 50% of all Profits, Loss, and Capital. On the very first day of the partnership's existence Partner A contributes $1000 into the partnership checking account and partner B contributes $10,000 into the partnership checking account. Then, by the end of the first year the partnership tax return (1065) reports a loss of $5000.

 

Will Partner A report capital of -$1,500 (i.e.$1,000 - $2,500) and have basis of zero?

Will Partner B report capital of $2,500 (i.e. $5,000 - $2,500) and have basis of $2,500?

 

How will Partner A's and B's capital and basis change if the partnership took a bank loan of $10,000 during the year.

 

PS I will pay you an additional $15 because of your additional time!

 

Thanks

Expert:  Brenda Guy replied 3 years ago.

Correct on the calculations. Basis is such a hard concept to explain and you got it. One more comment on the calculation - Partner A only gets to deduct $1,000 of the allocated loss of 2,500. B gets to deduct the 2,500.

As for the bank loan - When a partnership borrows from the bank all partners are held liable for repayment. Because you are on the hook for the partnership debt you add your share of the partnership debt to your basis.

So partner A will now have a capital account of -$1,500 and a basis of $3,500. ($1,000 - $2,500 plus $5,000). A now gets to deduct the whole $2,500.

Partner B will have basis of $7,500 and a capital account of $2,500.

 

Brenda Guy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 151
Experience: 20 years of working with income and estate tax issues for families and businesses.
Brenda Guy and other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
 
 
 
Chat Now With A Tax Professional
Brenda Guy
Brenda Guy
Certified Public Accountant
151 Satisfied Customers
20 years of working with income and estate tax issues for families and businesses.