Response to your question:
- In general, a partner's tax basis is adjusted annually due to the fact that the partnership does not pay any tax at the entity level and all income, loss, gain, etc. gets passed through to the partner and is taxed at the partner level. As a result, since these items are taxed annually, your tax basis gets adjusted annually for these items so there is no double tax.
- A complete discussion of tax basis is beyond the scope of a forum discussion. There are too many boxes on a k-1 to go through the exercise of discussing the impact of each box.
- Based on your facts in the original question, the tax basis I reflected in my original response appears to make sense.
- While the IRS made a fairly recent change to how the capital account is reflected on a partnership k-1, the "new" tax capital could be a reasonable interpretation of a partner's outside tax basis. However, it is the partner's responsibility to maintain an accurate outside tax basis.
- The instructions to the K-1 have a high level discussion of tax basis on page 4.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
