I have a Limited Partnership that holds an interest in 4 other partnerships, all of which pass through Rental Real Estate income. The upper tier LP has no other income, no ordinary income. But it has several significant expenses such as accounting fees, and management fees (guaranteed pmt) paid to managing General Partner. What is the appropriate place to deduct these expenses on the 1065?
1. Page 1 - Ordinary expenses under Sec 162 (this seems odd because there is never going to be any trade or business income)
2. Form 8825 - Create a "dummy" rental activity that will only have expenses (which keeps the nature of the expenses in line with the pass through income, but certainly would look weird)
3. Other Deductions, Sch K, Line 13e , K-1 13L - Deductions - portfolio income (treating them as investment expenses, which of course won't be deductible by the partners) This doesn't seem correct because the nature of the partnership income is Rental Real Estate, not "Investment".
Any insights and especially references to cases/code sections would be greatly appreciated!!
