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Ask Lane Your Own Question
Category: Tax
Satisfied Customers: 12022
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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When a partner in a partnership and his capital basis is negative

Customer Question

When a partner in a partnership and his capital basis is negative $79,000 and he receives $30,000 in cash for his final distribution from the partnership, how much does he paid taxes on? The amount he received in cash or the amount of his deficit, when most of the sale money went to paid back the original mortgage, and the cause of the gain is recapture of depreciation?
Bob Hall @*****@******.***
Submitted: 2 years ago.
Category: Tax
Expert:  Lane replied 2 years ago.
Hi,.Only the actual amount received is taxed;.Generally, gain is recognized only if money (cash and marketable securities) is distributed that exceeds the basis in the partnership interest before the distribution. The partner’s basis of his or her interest is determined at the time of the distribution..And on the rate, if this is all recapture, it's at 25% (this is a proxy, an average, if you will) for the fact that the depreciation taken (or that should have been taken) was deducrible as ordinary income..Hope this helps.Lane.I this has helped I'd appreciate a positive rating … (by using the stars or smileys on your screen) - That's the ONLY way I can be credited for the work here.