Sale of partnership interest

[susan8231]

Taxpayer sold her inherited interest in a rental real estate LP. Statement attached to the K1 included a "footnote not included in item N." This footnote reads "Unrecaptured section 1250 depreciation allocated to you in prior years: $xxxxxx". Does this amount need to be reported and, if so, how? It is a much larger number than what was received from the sale.

Thanks for any help with this.

[Bees Knees]

Partners who sell their partnership interest are subject to tax at various rates, depending upon the assets inside the partnership. The note saying this partner's share of Unrecaptured Section 1250 gain is X amount of dollars indicates that the gain you calculate should first be considered Unrecaptured Section 1250 gain (which is subject to the 25% maximum capital gain rate).

In other words, you can't use the 15% maximum long term capital gain rate on the sale of this partner's partnership interest until you use up all the 25% maximum rate on Section 1250 gain property.

[BOB W]

Recapture

Since the 1250 recapture is larger than the sale price, all of the recapture is limited to the sale price. No capital gaines gets reported, just the recaptured 1250 at a maximum of 25% or current tax bracket which ever is lower.

Wait a minute> Since this was inherited shouldn't this get a stepped up basis and somehow the sect 1250 be ignored???????

[Jiggers]

Inherited Partnership Interest

Since the 1250 recapture is larger than the sale price, all of the recapture is limited to the sale price. No capital gaines gets reported, just the recaptured 1250 at a maximum of 25% or current tax bracket which ever is lower.

Wait a minute> Since this was inherited shouldn't this get a stepped up basis and somehow the sect 1250 be ignored???????

I have the same question. When was it inherited and what was the FMV of the partnership interest at that date. If it was recently, then there probably isn't any capital gains, including the 1250 recapture.

[susan8231]

inherited partnership interest

Sorry, I should have included this information in my original post. It was inherited in 1998 and was valued at $1 on the estate tax return (based on the decedent's capital account, not FMV). So tax basis is the $1 plus increases and decreases over the years. I suspect that the "unrecaptured section 1250 depreciation" includes amounts allocated while the decedent owned the interest.

Another question about this transaction. Taxpayer received a form 8308 from the partnership indicating that part of the sale may have constituted a 751(a) exchange that would result in ordinary income/loss treatment. However, no information was included to help determine how much of the selling price should be allocated to this. Do partnerships ordinarily provide information as to these unrealized receivables or inventory items?

Thanks for the great help.

[Bees Knees]

Another question about this transaction. Taxpayer received a form 8308 from the partnership indicating that part of the sale may have constituted a 751(a) exchange that would result in ordinary income/loss treatment. However, no information was included to help determine how much of the selling price should be allocated to this. Do partnerships ordinarily provide information as to these unrealized receivables or inventory items?

No they don't ordinarily provide that information, and there is no regulation requiring them to provide that information.

You just have to ask nicely, and maybe if they feel like being generous, they might help you comply with the tax rules and give you that information.

Sorry for being sarcastic, but those really are the rules.

[susan8231]

inherited partnership interest

Since the 1250 recapture is larger than the sale price, all of the recapture is limited to the sale price. No capital gaines gets reported, just the recaptured 1250 at a maximum of 25% or current tax bracket which ever is lower.

Wait a minute> Since this was inherited shouldn't this get a stepped up basis and somehow the sect 1250 be ignored???????

The selling price was less than taxpayer's adjusted basis, so does the unrecaptured section 1250 depreciation just get ignored or does it get applied to the extent of the loss?

Thanks again for the assistance with this!