Section 266 Election

[buzzardbreath]

This election allows partners in a partnership to accumulate losses into their partnership basis instead of deducting them.
Which of the following is true? (I'm asking because I don't know):

A. A partnership elects §266 and thus reports no operating loss or investment interest.
B. Partnership must report all expenses, and each partner has the option of electing to capitalize the
expenses on his K-1 and not deduct the pass through losses/deductions. §266 available to each
partner individually and not to the partnership itself.

p.s. I see Sluggo is alive and well tonight...

[jsamans]

Which of the following is true? (I'm asking because I don't know):
A. A partnership elects §266 and thus reports no operating loss or investment interest.
B. Partnership must report all expenses, and each partner has the option of electing to capitalize the expenses on his K-1 and not deduct the pass through losses/deductions. §266 available to each partner individually and not to the partnership itself.

As I understand it, only certain types of expenses in certain contexts (e.g. unimproved real property and associated costs) can be capitalized under Section 266. If that is a correct understanding, then the election would have to be made at the partnership level, because the K-1 doesn't delineate the expenses sufficiently as to allow each partner to delineate between the expenses that are eligible for capitalization and those that are not.

[buzzardbreath]

I have one like that

I have one like that. Two partners invest in unimproved land for investment purposes and have no operation.
To be candid, I don't know why they created a formal partnership to begin with, but someone told them to do it.
He insists on filing so I do it for him and he pays me.

Actually the return does reflect expenses. No operational expenses of course, and page 1 of the 1065 is blank.
The K (and K-1s) do reflect investment interest in box 13, code H, and a list of other expenses in box 13, code W.
The expenses include property taxes, mowing, property insurance, etc.

[Roland Slugg]

Two partners invest in unimproved land for investment purposes and have no operation.
To be candid, I don't know why they created a formal partnership to begin with, but someone told them to do it.
He insists on filing so I do it for him and he pays me.

Your clients have "jointly owned property" and should NOT be filing a partnership return. Instead, each co-owner should report his share of the income and deductions, if any, on his own tax returns. That includes the making of the annual §266 election.

See the instructions for F-1065, page 2, middle column, under the heading "Definitions" ... "Partnership."