My client sold 100 shares out of 400 shares he owns in a PTP . So now he owns 300 shares. This PTP has $4,000 of suspended losses. I assume since he has not sold the entire activity that he can't deduct any of the $4,000 of suspended losses, correct?
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That is not necessarily correct
He can deduct his current and prior years suspended losses to the extent he has gain from the sale of the 100 shares. All the rest, along with the loss on the sale of the 100 shares themselves, if there was a loss, must be carried over and offset against income or when the entire interest in the PTP is disposed of.Roland Slugg
"I do what I can." -
Thanks Roland
I was so focused on the rules regarding selling 100% of ownership that I lost site of the fact that losses up to gains should be triggered.Comment
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Disagree
...and I realize I am disagreeing with folks who I believe know more than I do...
If the loss accumulates because of passive rules, it is added to basis, right? Then why cannot that be reported as a loss to the extent of the proportion sold?
This guy gives $10,000 for these shares of PTP and over the course of the next several years is unable to deduct losses which amount to another $40,000. If he sells 25% of his holdings, the basis in the amount sold should be $50,000/4, or $12,500. If he sells for $9000, then could he not deduct a loss of $3500, subject to the $3000 ceiling for capital losses?
Where have I messed up?
One possibility is that the $40,000 in losses may be commingled with other passive losses, vis-a-vis form 8582 worksheet, and lose its identity. But still the basis should be spread like peanut butter over all the holdings, right? And SOME basis would be allocated to the amounts sold.
Again, where have I messed up?Comment
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Suspended Losses
Interesting Snags, as I never thought of it in the way you presented.
I have always thought that the suspended losses are released as the passive income is presented and not added to "basis"
But I am wondering if your post is talking about "passive losses" and "capital losses"?
And then again, I might not be understanding the "passive loss" rules either
SandyComment
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As is the case with any other partnership, basis in a PTP is adjusted by profits, losses, etc. But suspended passive losses do NOT increase basis. Rather, such losses work just like any other passive losses, EXCEPT that losses from a PTP can only be offset against income from the same PTP. Unused losses related to a PTP can be only be deducted upon the complete disposition of that same PTP, to an unrelated taxpayer, in a fully taxable transaction.
See Example 3 on page 12 of the instructions for F8582.Roland Slugg
"I do what I can."Comment
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Ah yes!
The light goes off in my head!! The rules for partnership losses apply, a la suspension, recovery, loans, etc. and NOT the passive loss rules which add to basis such as rental losses, etc.
Thanks, Roland.Comment
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Generally passive losses do not add to basis. They are suspended until the entire activity is disposed of. See TTB 1040 7-10.Comment
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