Business & farm

I respectfully disagree, I don't think this should run through M-1 or P&L.  This approach, in affect, would erroneously increase (unrealized gain) or decrease (unrealized loss) the partners' M-2 capital accounts by the unrealized and untaxed income.

 

I believe it is more accurate to net the unrealized amount to the investment on Sch L to bring the asset back to cost.  You might also use the "unrealized" like a contra asset account and net to the same results.  I believe these approaches would result in accurately presented capital account.

 

Note, there will be exceptions for returns with M-3's, etc. but for a simple cash basis return this should work.