Partnership NOL carryforward after dissolution

[peauff]

My client and his wife operate an LLC. As of 12/31/21, both the husband and wife were active members. Effective 1/1/22, LLC membership changed and only the husband remained as an active member.  A final partnership return was filed for tax year 2021; both the husband and wife had accumulated losses in excess of basis. For tax year 2022, LLC activity will be reported on schedule C as a disregarded entity.  My understanding is that for the 2022 return, the wife's accumulated losses will be forfeited, however, the remaining member's (husband) losses as of 12/31/21 should be included on the 2022 return.  I have included these losses  as a net operating loss carryforward on schedule 1, Line 8a.  Would this be the correct treatment?

[PhoebeRoberts]

Losses in excess of basis free up if and only if there's additional basis.

It's not clear to me how you'd even have a H-W 1065 with losses in excess of basis. 

None of the things you've mentioned give rise to an NOL.

[peauff]

For this same partnership, I have re-computed the remaining partner's outside basis through 12/31/21 based upon how expenses were paid, as opposed to the partner's recollection of money he contributed.  A large portion of the partnership loss, however, relates to depreciation claimed for a vehicle owned by this partner and used by the partnership.   To include this asset in the partner's outside basis, I have computed it's value to the partnership as vehicle cost times the percentage of use by the partnership.  Would this be a reasonable approach?

[PhoebeRoberts · Accepted solution]

The partnership can't depreciate things it doesn't own. If a partner contributed the vehicle to the partnership, that would give the partner basis. If the partnership distributed the vehicle to the partner in dissolution, the partner's basis would (probably, likely, 732 is the worst code section ever except maybe for some of the other really bad ones) be reduced by net book value of the vehicle in the partnership's hands.