I have a client who has a partnership that closed it's doors in 2010. We did not submitt a final return becasue of the fact that she was still paying rent that she was on the hook for. In 2010 we did not take any of the losses on her personal return becasue I deemed them passive losses. In 2011 she just finished paying all of expenses for the business, so we will be filing a final return in 2011. I am thinnking I was incorrect in thinking that the losses were passive based on the fact that she pays bills and that is the only activity of the business. Do you think I could file her 2011 personal return and deduct the 2011 losses from the partnership. I am not worried about basis becasue she must have put enought money into the business for the bills to get paid. Do you think it is a red flag that I determined that the losses were passive in 2010, and not passive in 2011. Thanks for the help I hope this is not an elementary question. I was thinking after tax season I could amend the 2010 personal return, I wasn't going to amend the partnership return becasue it would be the same, the k-1's would not change.
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Dissolve Partnership
If you have designated prior losses as "passive" then these expenses can be rolled into the owner's basis in the partnership.
If you dissolve the partnership then the result would be a capital loss, fully deductible (subject to the $3000 limit). This way your client could get the benefit of the accumulated losses. I would not go back and "undefine" your passive losses for prior years. -
I can't really answer your questions and I don't want to guess. I just learned in a seminar that we are required to have basis calculations in our file (and the taxpayer) and for S-Corps even file with the tax return if one wants to deduct losses. I am searching for an hour now through Pubs and Instructions but cannot find anything.
Anyone else heard about this?Comment
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Thanks for the opinions
I'm nervous beecasue I did the return last year and will do the return this year. For those years all the partners have done is pay bills. I was thinking that at the very least I would be able to offset ordinary income with the passive losses that were created this year and last year. I'm assuming if the partnership just paid bills they had enough basis to take these losses. I read that in the year of termination passive lossses become active and offset ordinary income. I'm just nervous becasue between this year and last year it will be around 30,000 in losses. I wasn't going to take the losses in any prior years to me not doing the return becasie I could not accurately determine the basis. Do you think this is an audit waiting to happen, the records are not real good.Comment
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