I have a question regarding outside basis of a limited partner in a partnership. This partner received a K-1s in which the cash distribution to the partner is way more than the partner's basis. There is also a huge rental loss on this K-1. I believe that the difference between the partner's outside basis and the cash distribution should be treated as a capital gain. However, in looking at last year's tax return (in which the same situation applied) the difference was not entered as a capital gain. Either I am missing something or the prior preparer made an error.
In all cases, the rental loss should be suspended since the taxpayer's income exceeds the $100,000 limit. As I understand it, the Form 8582 should be completed and included with the tax return to track those non-deductible losses.
So to give an example of what I mean:
Note: In neither year did the partner contribute any money or property to the partnership. Limited partner.
2018 Partner's outside basis at the beginning of the year: 0
2018 Partner's share of income is: $3,123 (interest, no box 1 income)
Rental RE loss is: $37,176 (this amount I expected to see on the Form 8582)
Cash distribution is: $66,230.
I am thinking that the partner should have reported a capital gain of: $63,107
Also, partner's share of Non-recourse liabilities went down $40,724
and Partner's share of Recourse liabilities went down by $409,933
(those last two I believe stay suspended).
2019 Partner's share of income: $2,730
Rental RE loss is: $77,624 (again, I feel this should go on the Form 8582, added to prior year amounts)
Cash distribution: $83,133
I think that the partner should report capital gain of $80,403
Partner's share of non-recourse liabilities went down by $70,670 (again, in suspension)
Am I missing something?
In all cases, the rental loss should be suspended since the taxpayer's income exceeds the $100,000 limit. As I understand it, the Form 8582 should be completed and included with the tax return to track those non-deductible losses.
So to give an example of what I mean:
Note: In neither year did the partner contribute any money or property to the partnership. Limited partner.
2018 Partner's outside basis at the beginning of the year: 0
2018 Partner's share of income is: $3,123 (interest, no box 1 income)
Rental RE loss is: $37,176 (this amount I expected to see on the Form 8582)
Cash distribution is: $66,230.
I am thinking that the partner should have reported a capital gain of: $63,107
Also, partner's share of Non-recourse liabilities went down $40,724
and Partner's share of Recourse liabilities went down by $409,933
(those last two I believe stay suspended).
2019 Partner's share of income: $2,730
Rental RE loss is: $77,624 (again, I feel this should go on the Form 8582, added to prior year amounts)
Cash distribution: $83,133
I think that the partner should report capital gain of $80,403
Partner's share of non-recourse liabilities went down by $70,670 (again, in suspension)
Am I missing something?
Comment