Hi there and thank you in advance for your responses. I have a limited partnership (6 limited partners,1 GP) that invested in a real estate deal back in 2021. K-1s have been all rental losses up until this year, where the investment was unfortunately foreclosed upon. My partnerships Tax basis in the fund is negative due to years of real estate losses caused by high interest expense. My understanding is that once the asset is disposed of, The PAL rules are suspended for that activity. what can I expect the final k1 to look like for my partnership from the real estate deal? There is non recourse debt also involved. Specifically, Will it show a capital loss of all my initial capital? Will the PAL be suspended even though the investment was in a limited partnership (also passive in nature)? the issue I may or may not have is that on my 1040 carryforwards, it shows the PAL in my partnership, not the real estate fund. Possibly not tracked properly and hard to identify previous PAL attributed to the real estate deal. I know it’s probably dictated by the partnership agreement, but what happens to the partnerships negative capital account? Again, TYIA. I know this comes across as confusi
Question of suspended PALs in a real estate deal owned by my limited partnership
byu/Funinthesun414 intax
Posted by Funinthesun414
2 Comments
In a foreclosure with non recourse debt, the selling price is deemed to be the amount of debt forgiven. Its is quite possible to have a gain on a foreclosure, due to depreciation.
So your K-1 will show the results of that calculation, however, any gain on the disposition would be considered passive so it will be offset by any suspended passive activity losses.
Your final K-1 should show a zero capital account balance.
There is no such thing as negative basis.