Discussion:Partnership basis question - Again
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Discussion Forum Index --> Tax Questions --> Partnership basis question - Again
| 15 September 2007 | |
| I need help with a couple of concepts...I don't think I have an issue but do need to know my tax basis in my interest in the partnership.
I will simplify the scenario but I think it will be appropriate to the case. two individuals go out to purchase residential real property for investment. Residential rentals. Partner A gets the property under contract and Partner B provides the financial end (downpayment, closing costs and secures the mortgage). They go out and purchase a $150,000 property. Partner B puts up the downpayment & closing costs ($20,000) and personally secures the financing ($130,000 mortgage) and is personally liable for the debt. Partner A is not liable for the debt. Partner A provides property management services and nothing else for a 50% share of profits and losses. Is Partner B's tax basis $150,000 and Partner B's $0 at closing? Does the title/deed of the property actually have to be transferred to the partnership in order for the property to be a true partnership asset? | |
| 15 September 2007 | |
| is anyone willing to provide a couple of quick thoughts? | |
| 15 September 2007 | |
| The partnership capital at opening is $ 20,000. Part A = $0. Part B= $20,000.
There is an asset of $150,000 and a l/t liab (mtge) of $130,000. "sweat equity" does not increase/decrease the partners cap acct. The ending partner cap acct depends upon the income /loss of the year ended. | |
| 15 September 2007 | |
| Does a partner's share of Qualified Nonrecourse Debt increase a partner's tax basis?
These are just rental properties where Partner B is the only one liable for the debt. Does he get basis for that? And thanks very much for your reply. | |
| 15 September 2007 | |
| Blrgcpa (or others),
If distributions are in excess of basis and thus, subject to tax, does this give him basis to the extent that the distributions are taxable? | |
| 15 September 2007 | |
| Sorry, one additional question...I know I report the excess on Schedule D but where and what is the holding period? | |
| 15 September 2007 | |
| When you reply "In a partnership the profit is taxable." is this saying that yes, the excess distribution that is taxable gives the partner basis? | |
| 15 September 2007 | |
| A partner's tax basis equals his initial capital contribution, plus/minus his share of income (or gain) and deduction/loss, plus/minus any advances/distributions. His basis is increased by his share of partnership liabilities. If he is personally liable for the $130,000 mortgage than that is recourse debt which increases his basis. Basis equals capital account of 20,000 plus share of debt of $130,000 = $150,000 tax basis. Service partners do not usually get a capital percentage, just profit and loss. That is the quick and dirty. | |
| 16 September 2007 | |
| Partner B is personally and solely liable for the mortgage should the partnership fail to make the payments. I think the debt has been mischaracterized as Qualified Nonrecourse Debt by the person who prepared the 1065.
The partners have agreed to split profits/losses 50/50. Partner A does all the work (identifies the property and gets it under contract and upon closing, handles the property management. Partner B puts up all the cash and provides the financing...personally (i.e., downpayments, closings costs, personally closing the mortgage/loan in his name. The partnership merely collects rents and pays the bills. | |
| 16 September 2007 | |
| Recourse debt is debt for which the partner or partners personally bears the risk of loss. And it appears that they split Profits and Losses 50% but partner B has a 100% capital interest. But remember. it is generally true that if the service partner receives a capital interest in exchange for services he would have to recognize income to the extent of the FMV of the capital interest. CCH has a good book out about Partnerships I would recommend for these issues. | |
