Losses on Partnership return with no basis

[kpangelinan]

If someone is a 35% owner of a partnership return, but has only Sweat Equity in the partnership, is he allowed to carry some of the losses over to his personal returns on his Schedule K1? He does not have basis in the company and has received some guaranteed payments and some income via a W2.

Thanks for any help on this.

[erchess]

Bump

I don't know how it's done and I'm hoping someone will tell you but I am firmly of the opinion that losses on Partnerships and S Corporations are limited to basis and reduce basis which is why your tax software almost surely has a screen for tracking that basis. I am slightly less sure of this part but I think that losses not allowed due to basis are carried forward (not sure how long) and used in some year when events such as contributions of capital or otherwise taxable profits raise basis back above zero.

[S T]

I believe

you need to complete partnership basis in your partnership return and also a form 6198 for that partner, some of that info will migrate to the partner's 1040, and then you will have to maybe complete the partnership basis and form 6198 in the form 1040 as well. (Depends on your tax program)

All of that info will give you the info of whether or not the partner can deduct the loss in the year in question on his personal tax return.

Sandy

Do a research on some back posts (threads) relating to basis, losses as OI and guaranteed payments and the netting of same (it was an LLC) issue, but might give you some insight

[Gretel]

If someone is a 35% owner of a partnership return, but has only Sweat Equity in the partnership, is he allowed to carry some of the losses over to his personal returns on his Schedule K1? He does not have basis in the company and has received some guaranteed payments and some income via a W2.

Thanks for any help on this.

Only if partner recognized income from the sweat equity would this create basis. If the guaranteed payments are over and above the value of sweat equity and sweat equity never was recognized as income then no basis was created and the loss is suspended.

This used to be in TTB but I cannot find it. I am not very good in explaining things. If needed, maybe someone else will jump in.