Nov 17, 2015Mr. Stephen G,Thank you very much for your response. It is very helpful!
To answer your question; No! I have not sold the units. I am
just trying to figure out what I am up against if I were to sale the units.
What I am shocked about is the amount of ordinary income That would be taxed
at a higher ordinary rate. You will go broke paying the tax!
That's why I the question I did.
I tried to make the question as legible as possible on your screen.
It would go from a work - sheet type format to a narrative type report
that is hard to understand.
If you get the e - mail, I have attached the original question that might
make it a little more legible.Just to clarify the response :Question 1.
Is it fair to say the Cumulative Adjustment to Basis, is the amount the basis was reduced in excess of the original purchase price amount Plus any increases to the basis?
Basically Yes, except I would say that the Cumulative Adjustment to Basis is just the "net" amount the basis was reduced. It isn't in excess of the original purchase price, otherwise it would speak to the "Adjusted Basis itself", not the "Cumulative Adjustments".
If the MLP continues to have losses, this amount is not necessarily a part
of the Cumulative Adjustment amount? This cumulative Adjustment to basis is a little vague. What ever it is, it increases the total gain from the sale.
Question: It is expected that the partnership will continue running an ordinary loss, for the next couple of years, resulting in the outside Partnership tax basis to continue to zero. Therefore is it correct that the 2014 - Total Partnership of Loss is Suspended and can not be used until the Partnership either produces additional Net Income or I sale (sic) the 1,477, units.
Yes, that is correct.
Since I have no positive tax basis, the loss is suspend. To clarify this
for the past periods when I did a positive tax basis, those losses reduced
my tax basis and they will never be considered suspended losses.
Question 3 :
If I sell the units as shown above, where and how do I off set the Suspended Loss of -11,145.00. ???? Is this the ideal?
Any suspended losses at the time of sale would be reflected on a separate line on Schedule E, where you would note that "Prior Suspended Losses of MLP Partnership (Indicate ID #)" - they would be ordinary losses. It should be the ideal given the ordinary income recapture involved.
This is clear! Meaning both ordinary business losses and 1231 losses retain
their original character .
Question 4 :
= ( 51,412.5 less 11,032.00 ) = 40,380.50 1231 Net Gain = ( 18,282.70 less 113.00 ) = 18,169.70 How do I show this on the tax form?
When the units are sold, the reporting of the transaction begins on Form 4797 and carries through to Page 1 of Form 1040 (reflecting the ordinary income part of the transaction) and to Schedule D and through to Page 1 of Form 1040 also. (It may be necessary to use the Schedule D sub-schedule also, Form 8949). It just depends upon how the transaction is stated when the actual sale is made.
I think I got it. Ordinary losses, Schedule E and Net 1231 Gain 4797.
They indicated they have adjusted for my share of 751 assets, that would be treated as ordinary income. It could not be that much to produce 75%, as ordinary income??? Could it??
There would be other factors reflected in the 75% / 25% split besides the 751 adjustments; depreciation recapture, possibly treatment of intangible drilling costs (amortization); hard to say exactly without more information that they never provide.
I think I got it! This deals with how they split the total gain between ordinary income
and capital gain. I would assume most of it involves recaptureing
expenses of one type or another. I suppose it's determined by tax regulations
If this true, could you please clarify this recapture as to how this works? Are we talking about 1245 & 1250, depreciation recapture, or some other provision? Is it fair to say that that the amount of ordinary income as shown above in the amount of $51,412.50, is primarily due to depreciation recapture? Does this mean that my share of 1245 & 1250, assets, that I sold are subject to my share of depreciation recapture.
Depreciation recapture is simply your share of the amount of depreciation previously deducted (probably included in the Suspended Losses) that is "recaptured" when the property (your units) are sold. It is limited by the amount of the gain on disposition. So, basically the answer to all of these questions is "YES, you are correct.
Very Clear - Thank You!
Final Comment :
Any comments on the above mentioned questions is most appreciative!!!!
I really don't have any other comments re: oil & gas partnerships; generally what I've found over the years is the benefits that are touted when these deals are sold seldom turn out the way the investor anticipates. It seems that the brokers are usually the ones who come out ahead as