UPE deductions against Guaranteed payments

[jessicaphillipsc]

My client is a limited partner in a partnership. They have guarantee payments as well as unreimbursed mileage. When I enter the mileage and other deductions as  UPE, it does not reduce self employment taxes. I thought this was allowed against SE tax. Can someone provide insight on the rules here. They do have a positive capital basis.

Also, they have a sec 179 deduction on form K-1.  The spouse has negative farm income. Is sec 179 limited by the joint income or should I be changing something on 4562 to allow the deduction. The sec 179 deduction is less than their basis in the partnership and is less than the guarantee payment.

[taxiowa · Accepted solution]

Section 179 is limited by business income on the return.  So if spouse farm losses out do K1 income, wages, and guaranteed payment; then the 179 is limited.  Use F1 on line 11 of the 4562 from P'ship to see what is considered business income.

Also on the K1 worksheet right after line 12 where you enter the 179 deduction, there is a quickzoom.  Tap that sucker and then you scroll down just a bit to the question "Check this box to reduce self-employment income (guaranteed payments) by UPE and 179 deduction?"  A yes answer to this question will allow milage to reduce self-employment tax.

[abctax55]

Be aware that the partnership agreement needs to state that such expenses will not be reimbursed.

[katorlando]

searched and searched to find where to deduct UPE from the SE tax calculation  thank you !!