Recourse liability on Schedule K-1

What is the meaning of the Recourse line in area K (Partner?s share of liabilities at year end) of a Schedule K-1? Where does it go in a Form

1040? Is it perhaps the capital loss after the partnership was closed?

The context is that last year, my wife and a friend started a partnership. After a couple of months, the partnership was wound down. We have a K-1 reporting ordinary and self-employment income loss of (in round numbers) $5000 with $300 in AMT items. It shows 50% beginning and

39% ending shares of profit, loss and capital. In area K, ?Partner?s share of liabilities? is shown as ?Recourse $2000?. Of course, there was also our initial cash investment and a check for the sale of my wife?s interest resulting in a loss of $6600.

I?m still working on last year?s taxes.

Mike

Reply to
Mike Blake-Knox
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The first thing that comes to mind is the at-risk rules. You are not personally liable for non-recourse debt, whereas for recourse debt the entire amount is at-risk.

A fairly technical discussion can be found here, see also Pub 925.

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4694,00.html#3 "Losses in excess of a partner?s amount at-risk are suspended and carried forward until such time the at-risk amount is increased."

-Mark Bole

Reply to
Mark Bole

If the "couple of months" was still in 2009, and not in 2010, there should have been zero recourse liabilities and zero ending percent, so my guess is that whoever prepared the partnership return of income didn't do a very thorough job when it came to the capital accounts. That's not surprising, given that doing a partnership return correctly is pretty complex even for a fairly simple situation (and termination of a partnership is not a simple situation). Mark has the situation regarding at-risk issues pretty well nailed down.

Reply to
Tom Healy CPA

-Mark Bole

Reply to
Mark Bole

You are in over your head and you need professional help - go see a local tax pro who does partnership work. You can find one at

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and search for an EA near you.

Recourse and Nonrecourse refer to different types of debt, some of which ADD to your basis and some of which do NOT. When debt adds to your basis you are able to deduct more of the losses that pass through to you. BUT when you've done so and that debt is later either paid off or forgiven YOU have income associated with it.

Go see a local pro, Gene E. Utterback, EA, RFC, ABA

Reply to
Gene E. Utterback, EA, RFC, AB

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