Partnership Basis Question.


L

LSarrett

Limited Partnership is formed with 2 LP's and a GP. GP puts
in 1%, LP's put in remaining 99%. They purchase a piece of
property which will be subdivided and sold off. The deal is
that proceeds are allocated in ratio to the capital
contributed up to the level that the all partners receive
100% of their initial contribution. After that the GP gets
30% and the remaining LP's split the 70%. Say original
purchase price is $100k. They sell the 1/4 of the property
for $100K in year one. They are each paid their initial
contribution and profits are reported as $75k allocated by
the original contribution percentage.

As the remaining property is sold in future years, the
proceeds are split 30/70 as indicated above. This results
in the GP having negative basis (and the GP reports the
appropriate capital gains for cash received in excess of
basis). When the last piece of the property is sold, the
LP's will still have positive capital accounts. Am I
correct that at this time the LP's will be permitted to take
the capital loss?
 
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T

Thomas Healy

LSarrett@gmail.com said:
Limited Partnership is formed with 2 LP's and a GP. GP puts
in 1%, LP's put in remaining 99%. They purchase a piece of
property which will be subdivided and sold off. The deal is
that proceeds are allocated in ratio to the capital
contributed up to the level that the all partners receive
100% of their initial contribution. After that the GP gets
30% and the remaining LP's split the 70%. Say original
purchase price is $100k. They sell the 1/4 of the property
for $100K in year one. They are each paid their initial
contribution and profits are reported as $75k allocated by
the original contribution percentage.

As the remaining property is sold in future years, the
proceeds are split 30/70 as indicated above. This results
in the GP having negative basis (and the GP reports the
appropriate capital gains for cash received in excess of
basis). When the last piece of the property is sold, the
LP's will still have positive capital accounts. Am I
correct that at this time the LP's will be permitted to take
the capital loss?
Yes. I do wonder, though, why the extra payment to the GP
isn't handled as a Guaranteed Payment for services. That
would keep the profit allocations in line with capital
accounts, and the LP's wouldn't be stuck with a capital loss
down the road that could take many years to soak up at
$3,000 per year.
 
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D

David Woods, EA, ChFC, CLU

LSarrett@gmail.com said:
Limited Partnership is formed with 2 LP's and a GP. GP puts
in 1%, LP's put in remaining 99%. They purchase a piece of
property which will be subdivided and sold off. The deal is
that proceeds are allocated in ratio to the capital
contributed up to the level that the all partners receive
100% of their initial contribution. After that the GP gets
30% and the remaining LP's split the 70%. Say original
purchase price is $100k. They sell the 1/4 of the property
for $100K in year one. They are each paid their initial
contribution and profits are reported as $75k allocated by
the original contribution percentage.

As the remaining property is sold in future years, the
proceeds are split 30/70 as indicated above. This results
in the GP having negative basis (and the GP reports the
appropriate capital gains for cash received in excess of
basis). When the last piece of the property is sold, the
LP's will still have positive capital accounts. Am I
correct that at this time the LP's will be permitted to take
the capital loss?
Sorry. You lost me when you stated the GP had a negative
basis after being allocated a much greater that
proportionate ownership share of income.
 

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