Mortgage interest and property tax capitalized

[newbie]

Three member LLC, form 1065 had a retail business and rental property. The business sold in 2007 and they are left with the rental property that is for sale. Not rented - just for sale vacant. They are still making payments and the property taxes and mortgage interest are approx 40,000.

Do they need to file Form 1065 w/ no income and just the real property that is held for sale?

Can the property taxes and mortgage interest be capitalized or somehow deducted when the property actually sells?

Or are they just out the monies they paying?

[Koss]

Partnership Return

Sounds like the partnership is still in business, in the sense that it has not been dissolved. The partnership still has assets and liabilities. The partnership may have sold off most of its assets, i.e., the business that was sold in 2007. But that doesn't mean that the partnership itself has ceased to exist as a business entity...

So you prepare the partnership return, showing the expenses--the interest and property taxes--but no income. So the partnership has a net loss for the year.

The loss should be passed through to the partners on their respective Schedules K-1.

At least in theory, each partner might be able to take their share of the loss as a negative entry on Schedule E of their Form 1040, which would carry over to the front page of Form 1040, thereby reducing their AGI and their taxable income.

The problem is that the loss might be a passive loss. They might not be allowed to deduct it in the current year.

Girl... this gets really complicated really fast. [LOL]

Passive losses may get suspended, or carried forward, until some sort of final disposition, i.e., the building is finally sold, and the partnership is finally dissolved. Alternatively, the losses might become "usable" next year, if the building gets rented, and there is some passive income...

I haven't done one of these in a while.

You may want to start by downloading and printing the instructions for Form 8582.

And fasten your seat belt. [LMAO]

On the other hand, you might get off easy... Is some other tax pro doing the partners' 1040 returns?



BMK

[Gretel]

Three member LLC, form 1065 had a retail business and rental property. The business sold in 2007 and they are left with the rental property that is for sale. Not rented - just for sale vacant. They are still making payments and the property taxes and mortgage interest are approx 40,000.

Do they need to file Form 1065 w/ no income and just the real property that is held for sale?

Can the property taxes and mortgage interest be capitalized or somehow deducted when the property actually sells?

Or are they just out the monies they paying?

I know individuals can elect to capitalize carrying charges for real estate property owned. This election needs to be attached to the tax return. Look at Sec. 301.9100-2 and see if this also applies to partnerships. Good luck.

[ChEAr$]

Why

capitalize even if allowed? Doing so reduces eventual gain subject to capital gains rates, but
deducting instead each year saves taxes by using full amounts.

[Burke]

I agree with CHEAR$. I do one of these every year. Partnership bought property, subdivided, and sold off all lots except one. We still file every year and deduct property taxes (no mtge interest is involved) and expenses (my fee is just about it.) K-1's go to partners with deductions only. Hopefully they will sell remaining lot eventually.

[newbie]

I've been trying to do some research on this and agree to not take the expenses if allowed really doesn't make sense, but that's what they want.

What I want is to do what is correct. I must file Form 1065 and if I'm understanding correctly, if there is no active or material participation they would not have a choice but to suspend the losses. Only if it was rental property would the losses be a current deduction up to the amount of basis for each individual partner.

Burke, this sounds similar to your situation, are the losses in your case suspended on the individual returns. Does it matter if it's recourse or nonrecourse debt?

[newbie]

Bump

Looking for more thoughts.