Emily and Richard are interested in purchasing a large 140-unit apartment complex using a partnership. They are wondering the general advantages and disadvantages of partnership formation, as well as the tax issues of partnership.
Advise Emily and Richard about forming a partnership.
What are at least 2 taxation issues they would have to consider if they formed a partnership?
Would you recommend that they form a partnership? Why or why not?
There are many tax issues when forming a partnership. The first one and biggest one is that partnerships are "flow through" entities. That means that any taxes, including the character of the income or deductions, are distributed to the partners and taxed on their individual returns. This can make it difficult for an individual to do careful tax planning because they may not know the flow through amounts that will impact their personal tax complexion.
Another tax issue is tracking basis. The property contributed to a partnership has an outside basis (basis in the hands of the partner) and the inside basis (basis in the hands of the ...
Your tutorial is 385 words plus a reference and discusses when a partnership might be a good option and why to avoid partnerships in other situations.