In general, a partner cannot deduct expenses paid on behalf of the partnership if the partnership would have reimbursed the partner.
Should you win the audit lottery, you need to make sure your partnership agreement indicates that the partnership has a non-reimbursement policy.
In addition, since this is an investment partnership, you also have the hurdle of classifying the expenses:
- Are these expenses ordinary and necessary trade or business expenses under Section 162, or
- Are these investment related expenses
- If investment related, then no deduction as those were eliminated for tax years 2018-2025
- Claiming these as trade or business under Section 162 will be risky, and if audited, I am sure the IRS will challenge this position.
In either case, I would put them on line 13 of the K-1 entry, with a code W if wanting to claim under Section 162 and code L for deductions related to portfolio income. However, if you are going to take the position that the expenses are investment related, I wouldn't even bother with the 2nd K-1 as that means they are not deductible.
*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.
