Unreimbursed P-ship expenses

[Jesse]

When a person has qualifying unreimbursed P-ship expenses do these expenses reduce only the taxable income or also the income subjuct to self employment tax?

[BHoffman]

They also reduce the SE tax.

[Gretel]

Jesse, I assume you know that these expenses needs to be in the partnership agreement to be qualified.

[Jesse]

Yes, thanks for the reminder.

Anyone have Proseries - I am using the supplement worksheet and it is decreasing the income but not the income subject to SE?

[Gretel]

ProSeries

I use ProSeries and the partner supplement worksheet carries over to my SE. Have you entered the SE income from the K-1? It then should automatically carry to the bottom of this worksheet.

[Jesse]

There is guaranteed payments for capital that is not being decreased. The partner has equipment that is owned by one partner and leased to the partnership. The K-1 has the lease payments as guaranteed payments. Can the partner take depreciation to reduce the income from the lease payments subject to SE?

[Gretel]

That is a good question for which I don't have an answer. I hope someone else jumps in.

[Roland Slugg]

On the SE tax screen, or a related worksheet/screen, enter the UPEs as a subtraction from SE income. You may also wish to read the instructions for Schedule SE ... specifically the heading "Partnership Income or Loss."

[veritas]

The lease payments

There is guaranteed payments for capital that is not being decreased. The partner has equipment that is owned by one partner and leased to the partnership. The K-1 has the lease payments as guaranteed payments. Can the partner take depreciation to reduce the income from the lease payments subject to SE?

should not be reported as guaranteed payments. They should have been deducted as rent by the partnership and a 1099 generated to the partner as other income. If the partner is in the business of renting equipment it should go on a Sch C. If he is not in the business of renting equipment put the rent on line 21 of form 1040. Put the expenses on line 36. See page 7-5 of TTB.

[Jesse]

Thanks again to both (all three) of you. Why didn't I think to look on the instructions for schedule SE?!

First I'm going to file an extension and make sure I can claim the depreciation against the SE income. If I can I'll enter in Part II line 6 of the Schedule SE adjustments worksheet and attach an explanation.

Why wouldn't you report as guaranteed payments?

I like your signature line!

[veritas]

Guaranteed payments

is the equivalent of wages, paid to a partner for services performed. See page SB4-5 of TTB. If you have the deluxe version. If you don't have it I highly recomend it.

[Gretel]

I have my doubts if the rental payments to the partner can be treated as anything other than Sch. C income. I don't think he is in the business of renting equipment but I do think that he is deemed to be doing so since it is renting to a business where he materially participates in.