Reporting Final K-1 loss not as capital gain/loss

[ncabell]

My final K-1 shows "ending capital account" as zero, but over the life of the partnership I have experienced (significantly) more loss than is reported on each year's K-1 line 1 [Ordinary business income (loss)]. When I report this under the TT dialog "Describe Partnership Disposal" and then report it as "Sold Partnership Interest" it records the loss as Long term capital loss. But I need this loss to be reported as ordinaty busiess income (loss) so that it will reduce my other Schedule E earnings from similar partnerships. That's what it was. The long term capital gain/loss limits me to lowering capital gains which I do not have. The $3000/year does not help me with my tax situation this year.

Here is the formula that I used to determine the loss I experienced from this partnership:

Initial Investment + contributions - distributions - orindary business losses reported on K-1s = net loss not reported on tax returns.    

[dodgers90210]

Almost looks like you're trying to deduct a loss in excess of your basis.....not allowed! Your basis is decreased by your share of the partnership losses but never decreased below $0.

[RobertG]

The loss on the sale or other disposition of a partnership interest is a capital loss, not an ordinary business loss.

[ncabell]

Not true - I truly lost about 1 third of what I invested. The K-1s reported the 1/3 I received in distributions and another 1/3 in ordinary earnings loss, but never reported the last 1/3 decrease in value, which had it done so, would have been ordinary income loss, not capital loss.

[ncabell]

That's the point - it was not a loss at final disposition, but one which occurred gradually over the 10+ years I was in the partnership. I received tax advantage from the losses they did report, but not for an equal amount of decline that occurred gradually over the years. It is a failing of the K-1s or how they were reported that causes it to be treated as Capital gains.

I know I am right about this - I just can't find how to have TTax treat it as the ordinary loss it was.

[ThomasM125 · Accepted solution]

What you are describing is a loss on an investment, which is a capital loss.

An ordinary loss is a loss on business activity, sales minus expenses of those sales. If the value of your investment decreases, that is a capital loss.

Your loss is your initial investment + money transferred in - distributions - losses reported on your k-1 schedule - what is left over. The loss of your initial investment and money transferred in represents capital losses, not ordinary losses.