Do low income housing credits I received from a limited partnership lower my cost basis? It finally close out in 2021 and I need to figure capital gains!

[DaveF1006 · Accepted solution]

It depends. According to this IRS link,  tax credits, including low income housing credits, do not impact the partner’s capital account thus does not effect your partnership basis.

[user1115551 · Accepted solution]

Thanks for your reply. I like what you found. I also found it a while ago. It's just hard for me to grasp. Here is the brief scenario. My wife and I invested $5,000 in a limited partnership in 1996.  It produced approx $5,800 in low income housing credits over about 10 years which reduced my taxes each year. These credits flowed to the 1040 from form 3800.  The stupid partnership finally closed in 2021. The total CASH payback over the years was only about $330.  These were shown as distributions on the K-1s  IF the credits we received don't impact my cost basis, it sounds like I have a loss of approx $5,000 less $330, In other words a net loss of approx $ 4,700.  I really don't want to sound like I'm questioning you because I love your answer. I found the same IRS page and I read it the same way.  I just don't want to make a BIG mistake!

Thanks much, Dan

[DaveF1006 · Accepted solution]

Yes you can write off your remaining basis as a capital loss according to this Turbo Tax link.  The caveat to this provision is if your K1 received is marked final and you report the partnership as dissolved. Make sure that all the provisions that is listed in this link are fully complied with.