Publicly traded Partnerships

[etm...@gmail.com]

I have a client that has sold publicly traded partnerships.  There is an attachment to the k-1's that state some of the income needs to be reported as ordinary income which is shown as an adjustment on the 4797. Am I reading this correctly? Having a hard time understanding why there would be ordinary income?

[Lee Reams]

One common reason for ordinary income treatment is due to the recapture of depreciation or depletion on assets held by the partnership. If the partnership has depreciated property or claimed depletion, a portion of the gain on the sale of the partnership interest may be treated as ordinary income to recapture the depreciation or depletion previously taken. This is reported on Form 4797.

Another reason could be related to the partnership's operations and how they are reflected in the partner's tax situation. For example, if the partnership generates business income, which is ordinary in nature, and this income has not been fully distributed or taxed in the hands of the partner, then upon sale, adjustments may need to be made to ensure the income is properly taxed as ordinary income.

On May 2, 2024, at 12:22 PM, etm...@gmail.com wrote:

I have a client that has sold publicly traded partnerships.  There is an attachment to the k-1's that state some of the income needs to be reported as ordinary income which is shown as an adjustment on the 4797. Am I reading this correctly? Having a hard time understanding why there would be ordinary income?

 

	Lee Reams Sr., BSME, EA Chief Content Officer CountingWorks Pro | CountingWorks | TaxBuzz | TaxCPE p: 1.800.442.2477 x240 w: www.countingworkspro.com/  e: lee....@countingworks.com
See how CountingWorks can grow your practice.

 

[Matthew Bigelow]

Just being pedantic here in case it’s not clear to the original poster, the recapture would also apply to amortizable assets. So if, for example, when they bought the partnership, a component of the purchase was goodwill, and now a part of the sale is goodwill, this could generate ordinary income as well.

 

Matthew Bigelow, E.A.

JLZ Business Services, Inc.

Ph. (805) 643-3295, Fax: (805) 643-3297

email: mbig...@jlzinc.com

Web: www.jlzinc.com

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From: clientwh...@googlegroups.com <clientwh...@googlegroups.com> On Behalf Of Lee Reams
Sent: 05/02/2024 2:34 PM
To: 'professional...@verizon.net' via ClientWhysConnect <clientwh...@googlegroups.com>
Subject: Re: [clientwhysconnect] Publicly traded Partnerships

 

One common reason for ordinary income treatment is due to the recapture of depreciation or depletion on assets held by the partnership. If the partnership has depreciated property or claimed depletion, a portion of the gain on the sale of the partnership interest may be treated as ordinary income to recapture the depreciation or depletion previously taken. This is reported on Form 4797.

 

Another reason could be related to the partnership's operations and how they are reflected in the partner's tax situation. For example, if the partnership generates business income, which is ordinary in nature, and this income has not been fully distributed or taxed in the hands of the partner, then upon sale, adjustments may need to be made to ensure the income is properly taxed as ordinary income.

On May 2, 2024, at 12:22 PM, etm...@gmail.com wrote:

 

I have a client that has sold publicly traded partnerships.  There is an attachment to the k-1's that state some of the income needs to be reported as ordinary income which is shown as an adjustment on the 4797. Am I reading this correctly? Having a hard time understanding why there would be ordinary income?

 

 

	Lee Reams Sr., BSME, EA Chief Content Officer CountingWorks Pro | CountingWorks | TaxBuzz | TaxCPE p: 1.800.442.2477 x240 w: www.countingworkspro.com/  e: lee....@countingworks.com
See how CountingWorks can grow your practice.

 

 

 

 

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