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Old 04-04-2013, 07:31 AM
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passive loss limits in combination with section 1231


I'm having some difficulty figuring out how to report income/loss from a publicly traded partnership (PTP). I tried calling the IRS, but even the person I spoke to in their "Complex Personal Income Issues" center didn't seem to know anything about this. Here's the situation:

For the tax years 2008 through 2011, the PTP reported to me loss in both boxes 1 (ordinary business income/loss) and 10 (net section 1231 gain/loss) of Schedule K-1 (1065), so, following the passive loss limitation rules, I just kept record of these losses, and didn't report them (or, rather, I realized this a few years later and filed amended returns to fix it). In tax year 2012, for the first time, the PTP reported a gain for ordinary business, but still a loss for section 1231. To put some concrete numbers on it, let's say that each year 2008 through 2011, the PTP reported a $100 loss on box 1, and a $10 loss in box 10, so going into tax year 2012, I would have a total of $440 in prior year unallowed losses ($400 for ordinary business, $40 for section 1231). Then, say that in tax year 2012, the PTP reported a $100 gain for ordinary business, but still a $10 loss for section 1231.

So, my two questions are:

1. For tax year 2012, I'll report the $100 gain on schedule E. Then, should I report a $100 prior year unallowed loss on schedule E, and keep storing up 2012's section 1231 loss as unallowed due to passive activity rules, or should I take the $100 of loss I'm allowed to report based on passive activity rules and pro-rate it across the two categories (thus, reporting most of the $100 allowed loss on schedule E, but a bit on Form 4797)? Either way, the AGI ends up the same for this tax year, but I'm wondering what the IRS wants.

2. In a future tax year, supposing I have gains in section 1231, then how do I indicate that I am applying prior year unallowed passive losses against current year gains on form 4797? That form has no fields for reporting prior year unallowed losses like schedule E does. Note that this is distinct from the "unrecaptured section 1231 loss" stuff you have to deal with on 4797.

Thank you all very much for any help you can provide!

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