Negative Capital?

[msindc1]

Folks:

Client provided me with a K1 showing a negative beginning capital account.  Lacerte won't let me enter a negative number--presumably because there can't be negative capital?  Client has sent me his 2019 K1 showing a positive beginning capital account with a large loss that put the capital negative.  But what do I do with this?!

Micah

[sjrcpa]

Are you working on a 1040?

Where do you think you would enter negative capital?

Capital accounts can be negative. Basis cannot be negative.

[msindc1]

Yep--I am entering it in adjusted basis for a 1040.

[sjrcpa]

Basis does not equal capital

[Drphibes]

Agreed, talk about a timely subject. 

I have a brand new client who was on extension due to 13 partnership K-1's where the partnerships went on extension.  He is a limited partner, these are not publicly traded partnerships (all have to do with apartment complexes).  The K-1's have come in and about 1/2 have negative capital accounts but have amounts for recourse, non-recourse, and qualified recourse loans.  He is receiving cash distributions as reflected on the K-1.

Do the recourse and qualified recourse and non-recourse loan amounts (or some combination) count towards basis for determining if the cash distributions are taxable gains or not.  I would think non-recourse would not count.  Thanks is advance!!

[PhoebeRoberts]

The rules for calculating basis and at-risk are really too complex to explain on a message board. I suspect that the basis rules will not produce a gain, but the at-risk rules will.