Welcome Guest. Register Now!  


For 2012 Tax Tips For Year 2012.


Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 04-03-2013, 04:18 PM
Junior Member
 
Join Date: Apr 2013
Posts: 1
Need help determining adjusted tax basis in limited partnership.

I have a sizable loss in 2012 in a LLC as a materially-active, at-risk, individual limited-partner.

My original tax basis for the partnership interest was zero in 2010,as it was granted to me and I then vested into the ownership of the shares in 2011 and 2012 (an sweat equity type vesting as an employee of the company).

My interpretation of the IRS documents is that the "adjusted" tax basis is the determining factor for the amount of loss allowed for deductions from ordinary income, not the "original" tax basis. Is that correct? Additionally, does my maturing of the vested shares in the LLC qualify for adjustment of the basis as the shares now have true value?

Any help would be appreciated.

Thanks!!



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 04-04-2013, 05:31 AM
Moderator
 
Join Date: Oct 2010
Posts: 5,227
“My interpretation of the IRS documents is that the "adjusted" tax basis is the determining factor for the amount of loss allowed for deductions from ordinary income, not the "original" tax basis. Is that correct? “===========================>When you set up a partnership to operate a business, the assets you contribute to the partnership are set up on the partnership books at their FMV. But for tax purposes, the basis of the assets is the same as your basis in the assets. The partnership's basis in its assets for tax purposes is called the inside basis. The outside basis is the value of the partner's interest in the partnership. The outside basis consists of the partner's capital account for tax purposes and the partner's share of partnership liabilities. The inside basis for the partnership is generally equal to the total of each partner's outside basis.According to the IRS, the built-in gain or loss due to the difference between the fair market value and the tax basis is generally not recognized when property is contributed to a partnership.Unlike corporate tax law, partnership tax law provides for adjustments to the tax bases of partnership assets. In general, a tax law allows adjustments to be made to a partner’s share of the tax basis of the partnership assets, the “inside basis,” so that it is equal to the tax basis of his partnership interest, the “outside basis.” Inside basis is the basis that the partnership tax records compute for each partner. Inside tax basis is the initial investment (cash or the value of some other asset) plus profits minus loses minus distributions. Outside basis is what the tax rules say a partner’s share has cost the partner. Outside basis is effected by what the tax rules say the investment in the partnership is worth. Outside basis begins with the basis of the partners original investment plus profits minus loses minus distributions. For example, assume you and a friend decide to form a partnership. You contribute a building that you originally purchased for $75K and for which you have claimed $25K in depreciation. The FMV of the building is now $100K. Your friend contributes $50K in cash and equipment with a FMV of $50K that he originally purchased for $80K and for which he has claimed depreciation of $20K.The book value of the partnership's assets will be cash of $50K, equipment for $50K, and a building for $100K, for total book assets of $200K (at their FMV). You and your friend will each have capital accounts for $100K if you are equal partners.The inside basis for tax purposes is $50K for cash, $60K for equipment (your friend's cost of $80K - $20K in accumulated depreciation), and $50K for the building (your cost of $75K - $25K in accumulated depreciation) for a total of $160K. Your outside basis is $50Kand your friend's outside basis is $110K (cash of $50K plus the net depreciated value of the equipment for $60K).

In this example, you have a built-in gain of $50K ($100K FMV of the building less your basis of $50K) and your friend has a built-in loss of $10K ($50K FMVof the equipment less the basis of $60K). This built-in gain or loss would not be recognized until you sell or transfer your interests in the partnership.When you sell or transfer your interests in the partnership, your gain or loss would be calculated as the amount you receive for your interest less the outside basis of your partnership interest. The partnership's inside basis and your outside basis would change over time based on the partnership's activities, for example if the partnership acquires additional assets or incurs liabilities.

Another simple example is : assume that John’s father and Mary’s father each put $1K into a LLC. The partnership buys a piece of land for $2K. There are never any profits or losses. Years later the land is worth $1Million. John’s father gives John his partnership interest. As a gift, John assumes his father’s basis of $1K. John’s outside partnership basis is $1K. Mary’s father dies and she inherits her father’s partnership interest. As an inheritance, Mary can step up the basis to fair market value. Mary’s outside partnership basis is $500K(I mean 50% of the $1million). John and Mary put their partnership interests into a new partnership. Their inside basis in the new partnership is $500K each, half the value of the land. John’s outside basis is still $1K and Mary’s is $500K.


“Additionally, does my maturing of the vested shares in the LLC qualify for adjustment of the basis as the shares now have true value?”============>As mentioned above.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Determining Fixed Assets for S-Corp ealbertson S-Corporation 1 01-19-2012 09:09 PM
Tax ramifications for a Partners Profits in a Limited Partnership boblink Limited Liability Company 4 04-29-2011 11:55 AM
401K an asset when determining insolvency? Wild Horses Filing Requirements 0 02-26-2009 10:45 PM
What is the purpose of a Family Limited Partnership? sahar Limited Liability Company 1 01-22-2009 11:10 AM
Limited Liability Company merryjay Limited Liability Company 2 01-24-2007 02:21 PM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning