K-1questions...

[MelanieCPA]

My questions may seem stupid, but I just want to make sure I'm doing this right...

Client has K-1 (1065), passive income. 2006 is first yr of operation. Client has no basis and no amount at risk. There are small losses in boxes 1 and 8 (net short-term cap loss). Interest income of $ 2 in box 5. Ending cap account is -336. When I input into my software, the loss from box 8 shows up on Sch D and the $2 as int income. The amount from box 1 is disallowed on form 8582. I thought the entire loss of -336 would be disallowed and go on form 6198. Which is the correct way to report??

[erchess]

I expect that you

will get an answer to your questions from someone who unlike me actually knows the answers. However if you don't find the answer here perhaps you can find it from your software company or from the answer people at AICPA or NATP. I seldom get K1s and the clients who have them generally have lots of basis. When they don't have plenty of basis I reach out for help as you have done here.

[OldJack]

I don't understand why your partner does not have "at risk" as all partners are usually at risk for all debts and everything in a partnership.

[MelanieCPA]

Her share...

of all liabilities at the end of the year are all nonrecourse, which is not at risk, as I understand. The entity is an LLC.

[WhiteOleander]

I don't understand why your partner does not have "at risk" as all partners are usually at risk for all debts and everything in a partnership.

I was wondering the same thing. Especially since it is the first year. How did the partner become a partner? Must have a basis or something?

[MelanieCPA]

Family...

It's a family LLC and her parents "gave/included" her (and other siblings, I believe) as members without them contributing anything.

[erchess]

Hmmmmm

Wouldn't that mean that the partnership interest or llc share is gift property? And wouldn't its basis to the grandchildren be its adjusted basis in the hands of the grandparents immediately prior to the gift?

[Bees Knees]

An LLC member is not at risk for its liabilities. That is why you make it an LLC. So you aren’t liable for anything. The down side of an LLC is you are not at risk for the debts, and therefore cannot deduct the losses.

You are not entering things in your computer correctly. The loss is only deductible up to the LLC member’s at-risk basis. That includes capital losses.

[Bill Tubbs]

co-sign loans

An LLC member is not at risk for its liabilities. That is why you make it an LLC. So you aren’t liable for anything. The down side of an LLC is you are not at risk for the debts, and therefore cannot deduct the losses.

Except for when the partners co-sign the loans, which is quite often the case, especially in new LLC's.

Bill