I have a client who received a k-1 from a limited partnership he has been in for many years and has recovered his basis back. This is a real estate partnership. This year the partnership refinanced and the partnership reported the usual small profits on the k-1. But, In the distributions column, it had $30,000, the amount the client got out of the refinancing.. The limited partnership is located in California. The state took out a big chunk of witholding on this. This makes me think i have to do something else with this on the tax return like show the distribution as capital gains. Do you guys agree with this interpretation? And, if it is is subject to capital gains tax in California, is it also subject to capital gains tax on the 1040? I am not an expert in limited partnership taxation. What i dont understand is why if it is subject to taxation, why it did not show a large amount($ 30,000 ), on the capital gains line of the k-1. Thanks for any response.
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Parrotman, you've got capital gains by the amount that the $30,000 exceeds the partners' basis. The basis cannot go below zero. Prior to calculating the gain, however, make sure the basis reflects 1)his original and any subsequent investment plus 2)amounts he has been taxed on K-1s minus 3)losses on K-1s minus 4)distributions. This formula cannot go into the negative.
Would prefer someone from CA (we have several who frequent this board) answer your question about CA withholding. My guess is that there was a mortgage involved and CA withheld to assure everyone files a return.
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