Suspended K1 Losses

[Harvey Lucas]

Client has a limited partnership interest in 2 Real Estate Partnerships. He is a 2% limited partner in each.

Partnership A and Partnership B.

On his 2004 return, he had a suspended loss on Partnership A of $79,000.
On his 2004 return he had a suspended loss on Partnership B of $45,000.

Total suspended losses then on his 2004 return were $124,000.

For easy figuring, we will say for 2005, Partnership A's K1 shows no income and no expense.
Partnership B's K1 shows no income or expense other than a 1231 gain in box 10 of $192,000. (the partnership sold one of its properties in 2005).

My tax software indicates that he has a capital gain on schedule D for the $192,000 section 1231 gain.

My software also indicates that "all" of his suspended losses, in the amount of $124,000, ie the combined total from "both" limited partnerships is allowed on his Schedule E....is this correct???

Neither partnership has terminated...both partnership still have assets.

I can understand why Partnership B's suspended loss of $45,000 is being allowed, but am a little confused as to why Partnership A's suspended loss of $79,000 is also being allowed???

Is this correct???

Thank you,
HarveyLucas

[Harvey Lucas]

A few lookers but no takers?)

Also to note is that there is no prior year 1231 losses that need to be recaptured.

I am now pretty certain that it is correct. ie, in 2005 he had passive income from partnership B....ie, $192,000 of 1231 capital gains.....this means that he can deduct current year passive losses from this and other passive activities, including suspended losses from this "and other" passive activities from prior years...up to a maximum $192,000....his allowable losses are not limited to the same activity that he had the income from....he can claim his allowable losses from "all" passive activities suspended and current up to the passive income amount of $192,000.....agreed????

I am 99% sure that I am correct...would just like to hear it from someone (or two) others before I call the client to pick up his tax return.

Thank You,
HarveyLucas

[Harvey Lucas]

Help please

I could sure use some reassurance on this one...a simple yep or nope will do
Thank You,
HarveyLucas

[JG EA]

No reply

I think no one is answering because we would all have to look this up. I'm sure it is in TheTaxBook, but I'm at home and it is at work. Here is a quote:
"In A Nutshell

Passive losses are generally deductible only to the extent of passive income. However, current and suspended losses are fully deductible if there is a “qualifying disposition.” Under IRC § 469(g), a “qualifying disposition” requires three criteria:

Disposition of an entire interest (or substantially all[1])
In a fully taxable event (where all gain/loss is realized and recognized).
To an unrelated party.
If these three tests are met, losses are fully deductible against non-passive income (unless the taxpayer has basis limitations). Thus, in the year of disposition, losses allocable to the passive activity may offset portfolio and other investment income or may become part of a net operating loss. "
Quoted from: http://www.irs.gov/businesses/small/...146336,00.html

The fact that you have two different activities involved - I'd have to look it up, but it sounds like something I've had in the past that was allowed.

[Harvey Lucas]

Thanks for reply JG

I know, this appears to be one of those complicated ones that you have to think about...who has time for that in the final hours..so thank you so much for the feedback.

In this case I have no disposition....I have significant (huge) income from 1 of the passive activities...but both of the activities still have assets and are still operating...

Maybe i'm trying to make this too complicated.

The general rule is that passive losses are limited to passive income..except in a year of disposition...in a year of disposition, passive losses can be more than passive income, ie they can offset and be deducted against other types of income....

Stated another way...in a "non-dispo" year, you can deduct all of your passive losses, suspended and current..up to the amount of your passive income..

In my case...I have tons of passive income in 2005...way more than all my passive losses (suspended and current combined).

If the general rule is that I can deduct all my passive losses against passive income..and my passive income is more than all my passive losses, then I dont need to be concerned about having a dispostion....

Right??

Any replies are greatly appreciated...I know you all have lots on your mind and way too much work to do...and of course not enough time to do it...time for me to go home..I've been at it 18 hours today, started at 9am Sat morn...and still here at 3am Sun morn....

HarveyLucas

[rosieea]

I haven't had this situation for a couple of years, but my software handled it as you suggest. Passive losses up to the 192K are released.

[Harvey Lucas]

ThankYou Rosie, Thank you JG

Thank You, Thank You.
HarveyLucas