Can I clarify anything further for you?
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Stephen--Thank you for all the time and info that you provided to me regarding taxation of the income from limited partnerships. I have one thing to add that goes back to my original question about the effect of nonrecourse debt on a partner's basis. You asked for a reference, and I wasn't able to remember the related where's and why's. Now I've found it in the k-1 supplemental information FAQ's which I'll quote:
1) Q: If I sell my Partnership units, how is my tax basis determined for computing gain or loss.
A: Your tax basis is the original amount paid for the Parnership units, adjusted as follows:
Increased by the cumulative amounts of income and gain
Reduced by the cumulate amounts of loss....
INCREASED BY THE NON RECOURSE LIABILITIES ALLOCATED TO YOU ON THE K-1.
Also, later on....
Q. What is non recourse liability and how does it affect my tax basis in the Partnership?
A. A Partnership liability is treated as a nnorecourse liability to the extent that no partner or related person bears the economic risk of loss for such liability. A PARTNER'S TAX BASIS IN THE PARTNERSHIP INCLUDES ITS SHARE OF THE PARTNERSHIP'S NON RECOURSE LIABILITIES.
In view of your response to my question, what do you make of this.
I also did some more research and found a publication of the Joint Tax Committee, "Tax Guide to Master Partnerships" published in 1987. Here's the relevant quote:
A related rule provides a partner's distributive share of partnershiploss for a taxable year is deductible only to the extent of hisbasis in his parnership interest (sec. 704(d». The inclusion of parnershipnonrecourse liabilities in a limited partner's basis for hispartnership interest in effect increases the amount of partnershiplosses he can deduct for the year, although he may not have anyobligation to pay the liability.
So what do you make of that?
A limited partner. The k-1 instructions say that "a partner's tax basis in the partnerhsip includes its share of the partnership's nonrecourse liabilities."
so, you are saying that nonrecourse debt does not get added to basis, even thought the k-1 supplement says it does?
His non-recourse debt IS part of his basis.and now it's being allocated to the estate
ok. So, here are the numbers....
Losses from k1, current year ....1500
Losses from k1 suspended from last year ..500
Total losses -=2000
Capital account at DOD =40,000
Non-recourse liab. at DOD=30000
Value of partnership at Date of Death (from brokerage house)= 70,500
Computed basis= 40k + 30K= 70k
Step up in basis = 70.5k-70k = $500
Allowed losses = $2,000-$500= $1,500 (since losses can be taken at death except to the extent of step up in basis)
Is that what you mean?
Are you aware that this is completely contrary to the answer I received from the first expert who said that I could not add the nonrecourse liability to the basis?
Are you aware that this is completely contrary to the answer I received from the first expert who said that I could not add the nonrecourse liability to the basis? And therefore would not be able to take any of the losses?
You're NOT adding it.It's been there all alongIt's manifesting
I think part of the confusion is that you can do this through with the 1041, or through the 1040 from K1 from the estate
That's where I don't get you. I've got 2 numbers. One is the the ending capital account which is the amount the taxpayer contributed (purchase price) plus income (losses) earned, less distributions. The other is non recourse liability. If the 2nd is included in basis, it has to be added, doesn't it?
can WE TAKE ANY OF THE LOSSES OR NOT????
IF I DON'T ADD THE NC LIABILITY, NO.
IF I DO ADD THE NC LIABILITY, YES.
WHICH IS IT?????
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