member's basis
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member's basis Kevin Crouse asks
Do member's basis in the club increase due
to interest on cash accounts and dividends from stocks owned by the
club?
Do member's basis in the club increase due
to capital gains incurred through the sale of club stocks?
Do member's basis in the club decrease due
to capital losses incurred through the sale of club
stocks?
Your questions show that you have a very good understanding of
what a member's basis in a partnership is all about. The answer to all of the
above is YES.
My questions stem from the fact that one of
our members cashed out mid year. We sold a stock before he left, so he gets part
of the capital losses from that transaction.
Yes, but as you have indicated, that part of the capital loss
so allocated will decrease his basis, so on disposition of his interest his gain
will be that much larger. The IRS giveth and the IRS taketh away.
How does the departing member handle the
capital gains (losses) on his individual tax return for line 22 of his
K-1? I assume he uses his cost basis in the club to calculate the
gain/loss on the payoff he received and reports that on his 1040 Sched D (in
addition to his share of the club's capital loss on the stock we sold before he
left).
He will make an entry on Schedule D of his individual 1040 for the
disposition of his partnership interest. The amount on Line 22 will be the Sales Price (Column d). As you have indicated, the
Cost (Column e) will be his basis as determined above. In
addition to the entry for the disposal of his partnership interest, he will
enter his allocable share of partnership gains and losses on either Line 5 or
Line 12.I hope this answers your questions. If not, please come back.
Yours was an inquiry which will provide good information to a number of our
users.
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