Now I am curious

[TaxBird]

Expanding on my 'negative basis' false alarm, I am curious as to how one limits losses for partners when/if basis goes to zero?

I know there are three separate limts (Basis then At Risk then Passive). However, if a partner is basis limited, how is this reported in the 1040? I know At Risk is form 6198 and Passive is an 8582 form, but what's the form for basis limitations? Or is there one?

I've pulled a bunch of Pubs and form instructions which all say you can't deduct the loss beyond basis and that you can carry it forward, but none mention the reporting procedure.

I would appreciate if anyone could enlighten me.

Thanks in advance!

[Grumpy]

I posted a similar query on another board a few of years ago and the consensus of opinion was to use Form 6198 even though it was not explicitly designed for basis limitation loss carry forward purposes. Personally, I think that if a taxpayer's losses exceed his/her basis then they are not at-risk for the amount by which basis is exceeded, but I have never found that specifically spelled out anywhere.

[Gene V]

I don’t know if this is the right answer. However, my software prints out a basic limitation worksheet. This worksheet shows adjusted basis at beginning of year and current year loss and allowable loss by basis and carryover, etc.

I think where the IRS gets there information on any of your loss carryover is from Part II, line N from the K-1, which is where you got the information to input into your software.

[TaxBird]

I posted a similar query on another board a few of years ago and the consensus of opinion was to use Form 6198 even though it was not explicitly designed for basis limitation loss carry forward purposes. Personally, I think that if a taxpayer's losses exceed his/her basis then they are not at-risk for the amount by which basis is exceeded, but I have never found that specifically spelled out anywhere.

Thanks Grumpy!

I was going in that direction until I realized, as you did, that this isn't an 'at risk' situation (odd as that sounds).

From the research I gathered since posting, it appears that since it's considered a capital gain [Sec 731 (a) and (b)], it goes on the partners' personal Sch D (1040) even though it's not a 'real' sale. Actually, it looks like it would first go to the 4797 THEN flow through to the Sch D.

I'm still confirming this, though.

I'll let you know if I come up with anything more definitive.

[TaxBird]

AAAAAAAAaa

Thanks Grumpy!

I was going in that direction until I realized, as you did, that this isn't an 'at risk' situation (odd as that sounds).

From the research I gathered since posting, it appears that since it's considered a capital gain [Sec 731 (a) and (b)], it goes on the partners' personal Sch D (1040) even though it's not a 'real' sale. Actually, it looks like it would first go to the 4797 THEN flow through to the Sch D.

I'm still confirming this, though.

I'll let you know if I come up with anything more definitive.

Ok, I should clarify before I get the reputation of being too retarded for words (maybe too late). PARTNERSHIP DISTRIBUTIONS in excess of basis appear to go on the Sch D (and NOT via the 4797).

It appears, however, that the LOSS *is* limited via the 6198. No other place to put it that I could find.

Forgive me.

[Gene V]

Ok, I should clarify before I get the reputation of being too retarded for words (maybe too late). PARTNERSHIP DISTRIBUTIONS in excess of basis appear to go on the Sch D (and NOT via the 4797).

It appears, however, that the LOSS *is* limited via the 6198. No other place to put it that I could find.

Forgive me.

You are correct. In my earlier post, I forgot to say that the program does print out the 6198,

[TaxBird]

You are correct. In my earlier post, I forgot to say that the program does print out the 6198,

Thanks Gene!

[Golden Rocket]

The Tax Book

TaxBird, if you subscribe to The Tax Book, perhaps the best "form" you will find would be a worksheet in Chapter 25, Deluxe Version. There is one for a partner and one for an S shareholder. Neither are IRS forms. I would use Form 6198 strictly for at-risk, not for basis.

Best regards, GR

[TaxBird]

TaxBird, if you subscribe to The Tax Book, perhaps the best "form" you will find would be a worksheet in Chapter 25, Deluxe Version. There is one for a partner and one for an S shareholder. Neither are IRS forms. I would use Form 6198 strictly for at-risk, not for basis.

Best regards, GR

My question is not how to figure it (the loss limitation) but how to report it.

So when one has a loss limitation due to basis, how is this reported? Is it simply just a matter of not reporting the loss (anywhere) until it can be deducted? Does a statement need to be attached to the return (partners' personal) indicating that the partner has a loss carryforward due to a basis limitation?

I had thought the 6198 but only because I couldn't find any reference except for anecdotal recommendations.

Any ideas would be appreciated.

[Golden Rocket]

Loss

TaxBird, a loss in excess of basis (stock plus loan) is simply not reported
at all. It is "suspended" and can offset future profits.

The corporation is not responsible for keeping up with the shareholder's
basis. The shareholder is. There is no reporting of "suspended" losses
on a 1040 for losses in excess of basis.

There is reporting of "suspended" losses due to at-risk. See 6198 and
8582.

[TaxBird]

TaxBird, a loss in excess of basis (stock plus loan) is simply not reported
at all. It is "suspended" and can offset future profits.

snip>.

I see.

It just strikes me as odd that it wouldn't be reported anywhere in the partners' 1040 in the year of suspension.

Thanks GR.