Talk:Basis Limitations for K-1 Losses

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Basis limitations and At-Risk limitations are handled separately, but do create some confusion in what to do with the results. According to IRS instructions there is a recapture rule when a distribution would take the at-risk to a negative amount. If your distribution is large enough you would add income to the current year activity equal to any losses taken in all previous years. So we add more income in the current year and it could all be ordinary income depending on what the prior losses were. Would this not have to be before you determine how much distribution there is in excess of basis? This recaptured income would then increase basis, so that we can determine an distribution in excess of basis that is treated as capital gain. It seems that it has to work this way. I have a client in this potential situation and would appreciate any insight from anyone that has gone through this computation before, especially if you clearly understand the rules. Sheldon 17:02, 30 Sep 2005 (CDT)

The at-risk recapture would not increase the partners basis. IRC 705(a)(1)(a) spells out the rules for determining the partners basis. It states that the partner's basis is increased by his distributive share of "A) taxable income of the partnership as determined under section 703(a)". Section 703(a) defines the taxable income of the partnership. Since the at-risk recapture is not a partnership item, it does go into the computation of partnership income under 703(a) and therefore does not increase the partners basis. Stephen Wright

Personal tools