Form 1065 K-1, Box 13 (Deductions), Code W

[yhlook]

Hi everyone, I have a number of K-1s where I have quite a significant amount of management fees. These are not reported as partnership loss but rather as a deduction in Box 13 (Code W). The management fees reduce my capital account. From what I understand, I'm no longer able to take the management fee as deduction, but it still reduces my capital account.  So does that mean that my cost basis reduces but I'm not able to benefit from taking any passive loss deduction? So hypothetically, let's say I contributed $10,000 of capital and in year 1, I incur $1,000 of management fees (so my capital account reduces to $9,000). In year 2 the partnership winds down with zero distribution to the partners. Does that mean that I can only take $9,000 of passive loss instead of the full $10,000 that I contributed? 

[Mike9241]

you are correct. your tax basis is reduced by code 13W expenses but you get no tax benefit from the expense except maybe for state purposes.  other expenses may also be nondeductible and reduce your tax basis. they could show up on line 13L and/or 18C. unless renewed or revoked, this rule stays in effect through 2025.

remember that it is Congress not the IRS that enacts these tax laws