How do you handle a "negative" Adjusted Partner Cost Basis when selling a Limited Partnership?


Based on your post and responses, I have the following comments:

  • A partner's tax basis cannot go below zero (negative).  Any amount in excess of zero results in a taxable gain.
  • If your K-1 indicates that it is tax basis and this amount is negative, then you have a capital gain to the extent of this negative amount.
  • When responding to the TT interview questions with respect to your sale you have a couple of options:
    • Show the negative tax basis as your sales proceeds and a zero cost basis, or
    • Show your actual liquidating proceeds and a cost basis amount that when these two amounts are netted it will reflect the same gain as your negative tax basis.
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