Partnerships Losses on a K-1

[thetaxdoctor1]

Here is the situation: 

I have a negative capital account in 2023 for my partnership and I was told I could not take deductions if my capital account was negative. It was negative at the beginning and the end of the year.

Even though my capital account is negative, my share of business income was positive (over $800k income) and I see that in ProSeries on Sch E as nonpassive income (I own the majority of the partnership and materially participate). 

There are deductions on the K-1 such as 179 deduction for 7,109 and I see that on Form 4562 in ProSeries and Carryover for disallowed deduction is 0 so I am allowed that deduction on my tax return.

I was told if I had a negative capital account that I couldn't take any deductions, is that true? If so, I am concerned as it appears I am taking the 179 deduction. Or is it if your share of the business income is negative and your capital account is negative then you cannot take the deduction?

There are also 35k of other deductions which comprises of 300 cash contributions and the rest is amounts paid for medical insurance. The 300 does transfer to my Sch A automatically and the amount paid for insurance goes to Sch A for Other self employed health insurance and is on A but I didn't benefit from the deduction as my 7.5% of AGI is really high.

One of my clients wants us to review 10 years worth of returns to ensure he gets all the deductions.

Can I take deductions from my K-1 even if my capital account is negative? 

[dascpa]

You call yourself thetaxdoctor1 but you don't seem well versed in the concept of equity and debt basis.  Are you sure you should be preparing these type of tax returns? Maybe some continuing education classes first?

And why review 10 years of returns when the statute of limitation has ended on the majority of them?  Finally, reveiwing returns only shows what was reported.  Without the supporting documentation you have no clue whether the returns are accurate or not.

[MICHAELMARS]

And if its real estate, Qualified nonrecourse debt adds to basis and may make him positive.

Agree 100% with dascpa

[thetaxdoctor1]

And I agree, but I the client will not accept not looking at it. You know the way some people are.

I am aware of the statute of limitations.

I expected a more civil and professional response. I was just trying to get the opinions of others on here. You do not know my qualifications.

The client had heard a different opinion from someone else and I had to calm his fears.

[dascpa]

It wasn't a dig at you.  We all have areas we're just not sure about or not knowledgeable enough about. But being this is my 42nd tax season I know what I know and what I don't. I, and my malpractice carrier don't want me to take on clients that I'm not experienced at within their field, or within the tax filing requirements. Money is green, but that doesn't mean we should accept every client that walks in our door.

[sjrcpa]

For losses, the taxpayer has to be at risk and have basis. The capital account is rarely an indicator of either.

[thetaxdoctor1]

He was definitely at risk and had basis.