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Partnership Distribution / Negative Capital Account / 731 Gain ?
Hi there,
Looking for some help on the following fact pattern:
- 2 person partnership, 50/50 split on everything
- Partner B begins year with $5K tax capital account
- Partnership loses $30K in 2019
- Partner B also took random distributions totalling $40K in 2019
- Partner A kept putting money in and pulling it back out throughout entire year to keep operation going
- After calculating above ($5,000 starting minus $15,000 share of loss minus $40,000 distributions) the ending capital account would be NEGATIVE $50,000.
So it is my understanding that Partner B has to pay tax on the distributions that exceed his basis. So does he pay tax on the $40,000? Is this $40,000 taxed at LTCG or STCG rates?
Thank you in advance!
‎July 15, 2020
9:54 AM