k Flashcards
common flow through entities
1) Partnership - General partnership / limited partnership / limited liability company
2) S Corporation
Capital Assets
Right to receive a share of partnership assets during liquidation
Profit Assets
Right to receive a part of the partnership future income of losses
Contribution of property
- entrepreneurs can organize business without paying taxes
- partners don’t recognize a gain when contributing property unless Debt relief > Partner basis before debt
- liabilities assumed by partnership are deemed cash distributions from the partnership to the partner
Partner’s initial tax basis
Basis of contributed property
+partnership portion of debt
-non-recourse debt
+gain
Inside Basis
The basis the partnership takes in the assets that the partnership hold
-computes G/L recognized on all property sold by the partnership
Outside Basis
Tax basis each partner has in the partnership
-computes G/L recognized on the partnership interest when sold
Partnership Debt
- Recourse: allocated to partners w ultimate responsibility of paying off debt; partners considered to have an economic risk of loss
- Nonrecourse: allocated based on profit sharing % ; no partner considered to have an economic risk of loss
Separately Stated Items
-Taxed differently for each partner / relates to one specific partner
- LTCG/L
- STCG/L
- muni bond
- Guaranteed pymt
- Charity
- dividend
- 1231 g/l
- SE
- nondeductables
- interest income
- investment interest expense
- investment income
- 179 deductions
- Net rental real estate income
guaranteed payment
- NOT a basis adjustment
- Separately stated item taxed as ordinary income
- include in SE
- partnership deducts from OBI
Self employment tax
- General Partners: active role in management ; OBI is subject to self employment tax
- Limited partners: inactive role in management ; share of OBI is treated as investment income, not subjected to self employment Tax
Partner Basis adjustments
increase in basis:
- actual/deemed cash contributions (in crease debt/liability)
- OBI
- Separately stated items gain/income
- tax exempt income
Decrease basis:
- actual/deemed cash distribution (decrease debt/liability)
- OBI
- Separately stated items loss/expense
- nondeductible (fines, penalties)
Cash distributions
-cash distribution in excess of a partners basis are taxable and are treated as capital gains
Partnership Loss
-deductible when they clear 4 separate hurdles
Loss limitations
Tax basis limitation
at risk limitation
passive activity loss limitation
excess business loss limitation
