club_cafe: Cash Distribution and tax for withdrawn members

iras1 on

In a message dated 3/28/2007 12:35:48 P.M. Eastern Daylight Time, dbd1979@bivio.com writes:

Hello,
We had couple of members leave the partnership and received
cash distribution. The distribution received by each member
was greater than the initial investment they made, which
means that it was a capital gain. Where should the member
report this gain (short-term since partners withdrew within
a year) on their individual 1040 - Schedule D.

Maybe not. The gain/(loss) is not measured against their initial investment, but as the difference between their withdrawal amount and their adjusted tax basis in the club. The adjusted tax basis is reported on the withdrawal report and consists of all of their capital investments plus their share of any income, expense, gain or loss that the club recognized while they were members. The gain/(loss) is short-term or long-term based on the dates they joined the club and withdrew from the club. If short-term enter on line 1, if long term enter on line 8. Entry should be:

[investment club name] [join date] [withdrawal date] [withdrawal amount] [adjusted tax basis] [gain]or[(loss)]

Ira Smilovitz

AOL now offers free email to everyone. Find out more about what's free from AOL at AOL.com.

Paul Bleicher on

Ira (or anyone):

Can you clairfy your response. Say a member joined 5 years
ago, and has been adding every quarter. When they withdraw,
is the distribution (cash minus adjusted cost basis)
entirely a long-term gain based on the date they joined? Or
is it a combination of long-term (for contributions made up
to one year before withdrawal) and short term capital gains?

Thanks in advance.

Paul

Mail