Distribution in Excess of Partnership Basis plus more Capital Loss

[2brd]

As of 12/31/18, I have $2,000 of basis remaining in a partnership investment.  I received a $20,000 cash distribution from the partnership in 2019.  I understand that I have to pay capital gains tax on $18,000 ($20,000 cash received less $2,000 of basis) due to the distribution being in excess of my partnership basis, but what I'm wondering is this.  The K-1 also includes $5,000 of capital loss.  As I have no basis remaining, I assume I cannot take the capital loss - but can I "suspend" it for future use?  If so, how do I do that?  or do I just lose it? 

[Rick19744]

So a few comments here:

• Interesting you would receive a large distribution with little basis.  You may be involved in a real estate venture, there was refinancing, and some cash was then distributed.  If that is the case, then you have what is known as debt financed distributions.  Should this be your facts, I would recommend you consult with a tax professional as there are some nuances that need to be addressed as a result.
• Aside from the above, the ordering rules are taxpayer favorable.  Basis is first increased by items of income, distributions are adjusted next and then finally adjusted for any losses.
• Based on bullet 2, since your distributions exceed your basis, then your capital loss will be carried forward and utilized when you have basis.  The capital loss will be carried forward indefinitely until you have basis and also capital gains to possibly offset the loss; except for the fact that you would be able to utilize $3,000 per year in excess of any capital gains.

[Anonymous_]

I agree with @Rick19744 completely.

I would just like to point out that in order to get that capital loss carried forward to the following tax year, you will need to uncheck the at-risk box during the entry of your K-1 (the box preceding "All of my investment in this activity is at risk" is checked by default in TurboTax).

[2brd]

Thank you!  As an FYI, it is not a real estate venture.  I am a member of the General Partner (GP), which under the rules of the partnership allocates in excess of 20% of gains and losses to the members of the GP, while the GP only contributes 1% of the cost.  Hence, when losses are large and members are allocated a large percentage of those, basis disappears quickly!

[Rick19744]

Hopefully you have had a tax professional review your partnership agreement tax allocation in that it meets the substantial economic effect test.

I certainly do not have many facts, but I have been doing this for quite sometime, and this just does not pass my smell test; distributions should be following income.  And to have cash to distribute means that you should have been allocated income to support the distribution.

Just sayin.