Partnership Abandonment Amount to Claim as Ordinary Loss

[D-48]

I have taken the necessary steps to abandon a limited partnership interest per section 165(a) of the IRS code to take an ordinary loss and have received recognition of this abandonment on my 2019 K-1. The partnership never produced income, but has >100 patents which some day may produce income, but I decided that this is unlikely and opted for abandonment. My original investment in 2012 was $125K, but I have taken nearly all of this amount as K-1 losses over the years. I was also granted an additional partnership interest (FMV of $175K) for an advisory role I performed. My abandonment included both of these interests. The question I have is what amount am I allowed to claim as my ordinary loss? Thank you.

[jobu1669]

You're abandoning an interest where you have a zero basis? How can you claim a loss?

[D-48]

That is the question....I had zero basis from the initial investment, but I still retained FMV of $175K for the granted partnership shares. Why would I not be able to claim this as additional basis, which was not included in the K-1 losses?

[jobu1669]

Is there basis in the granted shares? I don't think so. Your basis in the partnership is the amount of cash and property you contributed plus net profit minus net losses and distributions. If you invested $125K and deducted that amount in losses and didn't contributed anything else, your basis is $0.

[Anonymous]

if you paid taxes on that $175,000 as would be the case if they included it as an income item such as a guaranteed payment then you have basis otherwise you do not. no basis nom deduction.   In any case, basis is also reduced by any distributions of cash or property they made to you. 

[AmeliesUncle]

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@D-48 wrote:

I was also granted an additional partnership interest (FMV of $175K) for an advisory role I performed. 

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As was mentioned above, if you were provided $175,000 of Partnership Interest for work that you did, in most cases that SHOULD have been taxable income when you received that.

Assuming you did that, yes, you can claim the loss.  If you didn't claim that as income, you have a bigger problem and you may want to go to a tax professional to sort things out.