Limited partner K-1 and Sec 179

[Black Bart]

No problemo, but

Well here I go again disagreeing with Black Bart. I have know about W2 gross as business income for many, many years and all preparers/CPA's that I know have know such. I expect those that don't know are in the minority. The application of the principle is common with tax returns for clients that have small business investments. y.

I'm gonna check it out. Poll coming up.

[JG EA]

I missed the point.

...but if you just want to know whether or not to count it, Gabriele and Jimmcg are right; it's true enough. It's in the "Depreciation" pub (#946--pages 19-20). ...
Funny how many people don't know it...

Lots of people still don't know this, ...

Everybody thinks the same way; "Wages? What's W-2 wages got to do with anything?"

I've completely changed my post - I re-read it after a few days and it was rude. I apologize, BB.
As it turns out (from what Bees said), what you said did have everything to do with the subject. Although I knew the point about using W-2 income for 179, I thought I couldn't use the 179 at all because of the limited partnership interest. I thought I was stopped at that point and couldn't take it any further.

My conclusions on the subject were totally wrong. I will amend the return also, just like I'm amending this post.

[OldJack]

But still, I am just unsure enough that I wish Bees would reply as to whether the limited partner is automatically not allowed the 179.

What... you think Bees knows more about this than the rest of us around here?

Or, are you just wanting another opinion from one that you respect?

[Black Bart]

Sorry,

I didn't mean to foul up your thread.

Yeah, I (among others) did digress and it is now scattered, but...it was an evolving post and subjects happen.

I don't think you're stupid; although you may feel I implied it by changing thread focus. I assure you that wasn't my intention and I do admit that I was somewhat thoughtless and/or inconsiderate by injecting a "foreign" issue into a matter which is obviously of serious concern to you. I hate to "fight" about stuff like this, but if that's not satisfactory, then you can skip my posts and I'll do the same for yours.

P.S. Bees probably will take an interest in it. He usually reads and replies to most of the questions around here when he gets a chance. If he doesn't soon, I'll ask him too.

[Bees Knees]

Since I have been asked to voice my opinion on this, I will provide an answer, even though I believe it has already been answered.

Reg. Sec. 1.179-2(c)(6)(ii) says: "(ii) ACTIVE CONDUCT. For purposes of this section, the
determination of whether a trade or business is actively
conducted by the taxpayer is to be made from all the facts and
circumstances and is to be applied in light of the purpose of
the active conduct requirement of section 179(b)(3)(A). In the
context of section 179, the purpose of the active conduct
requirement is to prevent a passive investor in a trade or
business from deducting section 179 expenses against taxable
income derived from that trade or business. Consistent with this
purpose, a taxpayer generally is considered to actively conduct
a trade or business if the taxpayer meaningfully participates in
the management or operations of the trade or business.
Generally, a partner is considered to actively conduct a trade
or business of the partnership if the partner meaningfully
participates in the management or operations of the trade or
business. A mere passive investor in a trade or business does
not actively conduct the trade or business."

Interesting that when I do a search on the word "limited partner," there is nothing in relation to Section 179. The above reg is the closest you will get.

The problem here is everyone is trying to fit a square peg into a round hole. Limited partners are not mentioned in the regs concerning Section 179. Instead, the term is "passive" or "active." Now it is true that most limited partners are generally going to be passive investors, but that is not always the case. So you won't find any prohibition against limited partners taking the 179 deduction, although most would not be allowed to take it because most would be considered passive investors.

As to the W-2 thing, that has been around for years. If a Section 179 deduction were to flow through to a partner on a K-1, the limitation is now applied at the individual level, not the partnership level. Any limitation at the partnership level would prevent the Section 179 from showing up on the K-1 in the first place. So since the partnership is OK with passing the 179 deduction through on the K-1, then you have to look at the individual partner level to determine whether the 179 deduction is allowed.

If that partner is merely a passive investor, then income from that passive investment cannot be used to take a 179 deduction. But if the partner is an active participant in the trade or business, then income from that activity could be used to claim the 179 deduction.

How about in the case of a limited partner as a passive investor in a partnership who also has W-2 income from another job?

Well, like I said, the limitation is at the individual level, not the partnership level. You even get to use your spouse's active W-2 income to claim a 179 on your Schedule C showing a loss. So why wouldn’t' a limited partner investing in a passive activity be allowed the 179 deduction from such activity if such taxpayer also has W-2 income to claim it against?

The principal here is that Section 179 is limited at the individual level once it passes through an entity. At the individual level, then, all 179 deductions from all sources fall into one big pile, and then income from any active trade or business can be used then to claim the deduction.

[Bees Knees]

I would also like to quote reg sec 1.179-2(c)(6)(iv), just for clarification:

"(iv) EMPLOYEES. For purposes of this section, employees are
considered to be engaged in the active conduct of the trade or
business of their employment. Thus, wages, salaries, tips, and
other compensation (not reduced by unreimbursed employee
business expenses) derived by a taxpayer as an employee are
included in the aggregate amount of taxable income of the
taxpayer under paragraph (c)(1) of this section."


Note that W-2 income is included in the aggragate amount of taxable income for purposes of figuring the income limit.

There is no requirement that income be matched specifically to a specific business that takes the 179 deduction. ALL income is aggragated, so that you can use income from one active business to claim a 179 deduction from another business in which there is no income. In other words, a passive investor in a partnership that passes through a Sec 179 deduction can use W-2 income from another job to claim the Sec 179 deduction.

[JG EA]

Bees and BB

Thank you so much for discussing this subject. Although, yes others had told me what the answer was, there was a little back and forth, and I couldn't see the forest for the trees.

I completely changed my post above. After a few days I finally studied your answer Bees, re-read the other answers, and realized I was out of the ball park completely. What I wrote was rude. I didn't mean it to be as rude as it was, but there it was.

Black Bart, I really apologize to you. I've learned on this board that I have to be careful about what I say, not having the gift of writing well, like I'd like to have. I really blew it.

[Black Bart]

No problemo again.

Apology accepted (I need all the friends I can get). But you were right to a point; that's happened to me a hundred times in conversation. A group's discussing something really interesting or really important to you and -- suddenly -- somebody says "Did you catch the Cardinals game last night?" or "This hot/cold weather's just awful, isn't it?" Cast aside, your topic is, maddeningly and sometimes irretrievably, lost.

Although I'd like to be known for generating more light than heat around here, I'm afraid the credit for that has to go to Bees. I didn't have a clue about any of the material he so deftly analyzed, critiqued, clarified, and resolved. I was just posting a simple pub statement which, as Old Jack (the big showoff) pointed out, everybody already knew.

But, again; all's well that ends well. Let's just trudge on.