The first part of the question is if a taxpayer's share of income from a limited partnership is $6,000 but he receives a distribution of $3,000, how does the distribution amount affect his taxes? He has to report the $6K income on his K-1. Does he need to report both? The K-1 reports the $6000 taxable income which must be reported on the personal return no matter how much was actually distributed to the partner. The $3000 distribution is reflected in the cost basis.
And the second part of the question is what would happen if the limited partnership has a loss, can he use it to offset any capital gains? The loss passed thru to the Sch E page 2 doesn't offset the capital gains on the Sch D directly. Please review the Sch E, Sch D and the form 1040 to see how this all relates to each other.
