NASSAUSUFFOLK

I have a client that received a 1065 K-1 (non-final)

The only asset in the partnership was a building that burned down. In 2022, they received insurance proceeds and disposed of the property. The K-1 listed as ordinary income the insurance proceeds, and a Section 1231 loss on the disposal of the property. 

In just looking at the K-1, I questioned why the insurance proceeds did not reduce the basis in the property, thereby showing a net gain against the property disposal. The way the K-1 shows the net 1231 loss, I do not see a way that I can take the loss and Lacerte (when the item is placed on line 10 of the input) will not allow the ordinary deduction .

My belief is that the accountant may have erred. If the proceeds were shown as a basis deduction, there would have been a net gain on the disposal. Currently the K-1 shows a large Section 1231 loss which I cannot deduct. The Partnership remains open.

Any thoughts? I am holding up the preparation of the return until I better understand the accountants preparation error, or my lack of understanding. (Calling the accountant that prepared the return/K-1 today for his input, but would appreciate your input to better prepare myself for the discussion

Please help……..

Michael Schneider

mlscpa01@gmail.com

516-967-8400

I thought I would answer my own question. The accountant clearly made a mistake. The insurance proceeds should have reduced the building's basis and the sale of the property when netted against the remaining basis would have resulted in  net capital gain. Now…. To convince the preparer to amend his partnership return to provide an accurate K-1. 

I have a client that received a 1065 K-1 (non-final)

The only asset in the partnership was a building that burned down. In 2022, they received insurance proceeds and disposed of the property. The K-1 listed as ordinary income the insurance proceeds, and a Section 1231 loss on the disposal of the property. 

In just looking at the K-1, I questioned why the insurance proceeds did not reduce the basis in the property, thereby showing a net gain against the property disposal. The way the K-1 shows the net 1231 loss, I do not see a way that I can take the loss and Lacerte (when the item is placed on line 10 of the input) will not allow the ordinary deduction .

My belief is that the accountant may have erred. If the proceeds were shown as a basis deduction, there would have been a net gain on the disposal. Currently the K-1 shows a large Section 1231 loss which I cannot deduct. The Partnership remains open.

Any thoughts? I am holding up the preparation of the return until I better understand the accountants preparation error, or my lack of understanding. (Calling the accountant that prepared the return/K-1 today for his input, but would appreciate your input to better prepare myself for the discussion

Please help……..

Michael Schneider

mlscpa01@gmail.com

516-967-8400