Discussion:Question about Form 1065
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| 12 March 2008 | |
| I am one of three partners in an LLC that invested in a single family home. The partnership owned the property for three years. I just recieved my final Form K-1 and a copy of the 2007 Form 1065.
I have three questions: 1. The partnership maintains its books and records on a tax basis. The beginning of the year balance sheet on schedule L has a negative capital account balance. Can this be right considering: a) the LLC's only asset is real estate (which is passive that I thought limited the amount of deductable losses to the amount of capital contributed); b) there have never been any distributions; and c) the mortgage loan is non-recourse? 2. How can it be possible that my capital account balance on Form K-1 at the end of the year is negative when we sold the property during the year for a sizable gain? 3. How can it be that the mortgage interest deduction is $90,500 on a $400,000 mortgage? Thanks for any advise | |
| 12 March 2008 | |
| these are all questions to ask the tax professional who prepared the return. They got paid, so you should presume that they have a reason for doing something, just ask. If it appears that they don't know what they are doing, take your stuff to a different tax professional. | |
| 12 March 2008 | |
| I understand that Kevin, but before I started making noise, I first want to make sure my questions are legitimate and I would like to know enough to ask intelligent follow up questions when they invariably tell me its correct. | |
Tx-learner (talk|edits) said: | 12 March 2008 |
| Seemed so many DIYers out there...
All tax proffessionals will soon close business b/c can't afford to pay office rent and expenses anymore, sad ;<... | |
| 12 March 2008 | |
| I think that these are all legitimate questions to ask. I think you deserve an answer from the person who did the return. | |
Southparkcpa (talk|edits) said: | 12 March 2008 |
| The return clearly is incorrect. You do not provide enough info. Was this rental property? Constructions etc..
The negatice cap account beginning is reasonable as you may have had losses. The neg capital account should have been restored from the gain. Why the end is negative is an enigma. SP | |
| 12 March 2008 | |
| Unfortuantely, I'm a passive investor so I don't have all the answers, but the property was rental real estate that we were lucky enough to sell at a gain. Since that was the only activity of the LLC and since the mortgage was non-recourse and LLC prepared its books on a tax basis, conceptually, I do not understand how the capital account could EVER be negative. | |
Southparkcpa (talk|edits) said: | 12 March 2008 |
| The rental property, during the renatl years, in most likelihood generated a tax loss from depreciation which was passed down to your capital account. That happens all the time. | |
| 13 March 2008 | |
| I understand that if your recordkeeping is pursuant to GAAP, but if your book and records are maintained on a tax basis, how could depreciation or any other expense cause your capital account to be negative? Wouln't that indicate that you violated the at risk rules? | |
Southparkcpa (talk|edits) said: | 13 March 2008 |
| Based on your questions, you have concerns. This is not the forum to address at risk vs basis vs GAAP etc.... suffice itto say that a negative opening cap account is what I would expect to see. Whether you are atrisk or have basis is a secondary question. I defer to Kevins point. Go see the preparer. | |
| 13 March 2008 | |
| Talked to three people and have received three different answers, which is why I posted here. I guess tax reform is definately needed when preparers don't know the answers.
And Southpark, I appreciate your feedback, but with all due respect, my understanding is that this is a forum to discuss tax related questions, whether or not the questions involve interrelated tax issues. | |
| 13 March 2008 | |
| Rose you are not even providing the complete picture here. First of all, reconstructing the basis is needed. If I can prepare a return based one 3 points, I'd be pretty well off doing 10 returns an hour. But to tell you the truth, if you really need an unqualified opinion (us not being the paid preparer to research for you), you need to provide alot more information...
First you should check with the book keeper of the LLC in regards to your capital account. Hopefully the LLC only have 1 rental property and minimal transactions to your capital account. Make a transaction flow chart to determine your allocation of partnership items. Negative Partner Capital Accounts are not uncommon. What did the three people tell you? Be up front more with your information. What was your initial contribution? How about the information from Year 1? Year 2? The mortgage interest deduction do look a bit weird but hey, we can't tell you how.... Only you can tell us the numbers leading to that figure. Your preparer should be able to explain everything to you. You should also request the LLC's book keeper to provide you the work papers as a share holder. | |
| 13 March 2008 | |
| Rose follow this link
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[[2]] TaxAlmanac is an ideal, free solution for tax professionals from all walks of life. This site serves as a forum for tax professionals to discuss, share their knowledge, and help one another. You can even set up a bio page to share a little information about yourself and you can email others in the TaxAlmanac community without disclosing your actual email address! Then fill out your profile! Good Luck! TexCPA 09:53, 13 March 2008 (CDT) | |
Southparkcpa (talk|edits) said: | 13 March 2008 |
| Rosezee
I meant no disresoect, simply that in my view the forum here is for questions where a definitive answer may be had. Your questions seem to keep coming and the preparer is your best solution here. Pegoo and kevin are both on the mark. I tried to help but it seems to have just prompted more questions. Good luck. | |
