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Old 02-26-2014, 08:42 PM
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K 1 form

Hi,

I have a stock that is a partnership and I'm not sure how to answer these questions on H and R block. any help?

"Is all of your investment in this partnership at risk?

Do the entries for this Schedule K-1 include adjustments for losses disallowed in prior year due to basis limitation?"



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Old 02-27-2014, 12:51 PM
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Originally Posted by hey_jay View Post

#1;"Is all of your investment in this partnership at risk?

#2;Do the entries for this Schedule K-1 include adjustments for losses disallowed in prior year due to basis limitation?"

#1;it depends; There are two different ways you can be at risk for a partnership investment. 1) through your capital account, and 2) through recourse liabilities. 1)The capital account keeps track of the money you originally invested in the partnership until it goes down to $0, you still have money that you are at risk of losing for tax purposes. ; recourse liabilities means that the lender could come after you and your assets to satisfy the debt , this should never apply to LPs in an MLP or LLC members; by definition, you should not be on the hook for the entities' liabilities - if you are, then you have non-tax problems. Nonrecourse liabilities mean that the lender cannot go after you, they can only go after the collateral, and if the collateral is insufficient to cover the debt, then the lender is SOL and you are not at risk there.

#2;Correct; basically, your basis limitation is a limitation on the amount of losses and deductions that you, as a partner of the partnership can deduct on 1040. The basis limits are the first of three limitations that are applied to Sch K-1 losses and deductions. After the basis limits are applied, the At-risk limits are applied. If losses are allowed by the basis and at-risk limits, the passive limits are applied on 8582, if applicable. the capital account shown on your K-1 is not the same as youir basis in PS. the basis schedule represents outside basis while the capital account represents inside basis. These can differ, even when the PS maintains its books and records on a tax basis. One way this difference can occur is when you buy your PS interest from another partner, since the purchase price becomes the starting point for your outside basis.



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