Cost (Tax) Basis Calculation from Final K1 in Section L

Forum|Forum|1 year ago
April 7, 2025
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I read the forums from prior years on how to calculate cost (tax) basis from Final K1 in Section L. It looks like the cost basis is ALWAYS zero if the ending capital balance is zero. I have a problem with this. I have invested in a real estate LLC (limited partnership) for years ago. I have never received any distributions until the sale. The amount of distribution was less than my initial capital contribution. Although I lost money in this partnership, my cost basis is zero makes it look like I have capital gains. How is this possible?

Here is the Section L from my final K1:

Beginning Capital Account: 23654

Capital Contributed During Year: 0

Current Year Net Income (Loss): -2748

Other Increase (Decrease): -618

Withdrawals &Distributions: 20288

Ending Capital Account: 0

I believe my cost basis should be $23654 - $618 =$23036 and my sale price should be $20288. Hence, I should incur a capital loss.

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ThomasM125

Your basis for calculating your capital gain would be your original investment, plus income from the business you entered on your tax return over the years, less losses you deducted, plus additional amounts you invested, less amounts distributed to you before the final distribution. You would subtract that from the final distribution amount and that would be your capital gain or loss on the liquidation of your interest in the business.

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alex1907Author

If I follow your recommation, I end up getting the same amount for cost basis and sale price, which results in zero capital gain/loss. This cannot be true as I am incurring a loss from this investment.

PatriciaV

Employee

You may wish to use the worksheet provide by the IRS to assist in tracking basis: Worksheet for Adjusting the Basis of a Partner's Interest in the Partnership.

This worksheet includes all elements that need to be included in the basis calculation, including those items that are not used by the partnership for Schedule K-1 Section L.

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