Tax for Partnership Expenses
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1. Taylor Tamblyn is a partner in three partnerships. Earlier in the year, Taylor received her Schedule K-Is from her partnerships and discovered that she had been allocated amounts under Code sec.179 of $100,000, $104,000 and $72,000 respectively. Taylor is familiar with Code sec.179 and knows that she will not be able to deduct more than $250,000 on her 2010 tax return. What alternatives are available for the excess section 179 expense Taylor was allocated in 2010? By what amount is her basis in each partnership reduced by the allocation of section 179 expenses? See Rev. Rul. 89-7, 1989-1 CB 178.
2. Florena Santiago is a general partner in Santiago and Johnson partnership (SJ) with a 50- percent interest in profits and losses. SJ files partnership tax returns on a calendar year basis and uses the cash receipts and disbursements methods of accounting. At the close of the current taxable year at issue, SJ had liabilities for accrued expenses of $100,000 and account payable of $250,000. At the end of the prior year, SJ had liabilities for accrued expenses of $160,000 and account payable of $285,000. Florena had a basis in her partnership interest at the end of the prior tax year of $50,000 excluding any allocation of partnership liabilities. What are tax ramifications of the Santiago and Johnston partnership having a $210,000 loss for the current tax year on Florena's basis and deductibility of losses? See code. 752 and revenue ruling 88-77, 1988-2 CB 128
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Solution Summary
The expert examines the tax partnership for three expenses. The return tax is determined.
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ANSWERS
Question 1
Since Taylor Tamblyn receives multiple pass-through section 179 deductions and that these deductions exceed the total annual limit, these excess deductions are lost to her. However, these lost (or disallowed) deductions can be used to adjust her partnership basis once she disposes her shares in all or any of these entities.
Reduction in basis
Partnership 1 100,000
Partnership 2 104,000
Partnership 3 72,000
Though the full amount can't be claimed as section 179 expense, the amount lost must still reduce the basis of Tamblyn's partnership interest.
Question 2
Increase in accrued expenses = 160,000 - ...
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