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My Brothers and Sisters and I, created a Partnership. The

My Brothers and Sisters and...
My Brothers and Sisters and I, created a Partnership. The Partnership owns a mortgage on property that my Brother had purchased from my Father. My Father passed away and we inherited the mortgage. The purpose of the Partnership is to distribute the monthly payment equally amongst the 5 Partners. I am the Managing General Partner. I purchased a turbo tax program. I understand that the interest portion of the monthly payment is “Investment Income”. It shows up on the K1 on line 5 as Interest Income. But I don’t know where to put the expenses associated with the Partner (Bank Fees, check fees, postage, etc. If I put the expenses in the general expense category, then it creates a credit towards SE taxes as an offset from general income (It doesn't offset the interest). If I put the expenses under investment interest expense, then the shared expenses show up on line 13 with a code H. A friend of mine indicated that I can’t use the expense on a 1065 because all of the income is “investment income”. My friend indicated that investment expenses must be deducted, by each individual, on their 1040 schedule A. If you could clear this matter up for me, I’d greatly appreciate it. Thanks very much!
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Answered in 27 minutes by:
2/2/2013
rramsook
rramsook, Enrolled Agent
Category: Tax
Satisfied Customers: 307
Experience: Specialize in Individual,Corporate, and payroll tax matters.
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rramsook :

Hello, Welcome to Just answer.

rramsook :

Yes, you should report the expense on 13H as investment interest expense, which would then get reported on their 1040 Sch-A as an Itemized deduction.

rramsook :

The investment income and the investment expense will be flowed through to each partners 1040 tax return.

rramsook :

from the Sch K-1

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Customer reply replied 4 years ago
Relist: Other.
I was hoping to get advice from a CPA and not an EA. Thanks.
ezcpa
ezcpa, CPA
Category: Tax
Satisfied Customers: 171
Experience: Certified Public Accountant
Verified

Hello.

 

I am a CPA with experience in investment partnerships.

 

I agree with rramsook.

 

Investment expenses are deductible expenses other than interest that are directly connected with the production of investment income (IRC 163(d)(4)(C). They are limited to the amount allowed at the shareholder level.

 

The correct reporting on form K-1 is Line 13 code H. From there it will flow to your 1040 Schedule A.

 

ezcpa
ezcpa, CPA
Category: Tax
Satisfied Customers: 171
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Customer reply replied 4 years ago

Thank you very much. I also appreciate the tax code that you supplied. I will give you a good rating for your answer!

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ezcpa
ezcpa
ezcpa, CPA
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