Comments on: Received Distibution From Partnership $25000. My Share Of Passive Taxable Income Is $30000. What Is My Income?

By: Khemosabi's Ranger

Khemosabi's Ranger — Mon, 23 Nov 2009 01:00:16 +0000

The $25,000 is a return of your investment. Distributions are only taxable when they exceed your basis. If you don’t know your basis in the partnership, ask the person running the books. They must keep tabs of everyone’s basis. If the distribution exceeds your basis, the amount it exceed your basis is taxed as capital gain. Any non-taxed distribution lowers your basis on a dollar per dollar amount. For example, if your basis in the partnership was $75,000, the $25,000 distribution is tax free and your new basis is now $50,000. Your basis can not go below zero.
The $30,000 passive income is treated just like any normal passive income. If you have no other passive income or loss, it will end up on the front of your 1040 and add to your gross income for the year just like if it were interest at a bank. You do NOT have to pay social security or medicare tax on passive income. If the $30,000 was not delivered to you, then you need to add it to your basis. Any time you are taxed on income you don’t receive, your basis goes up. Any time you receive money without being taxed on it, your basis goes down.
Hope this helps

By: Lauren

Lauren — Sun, 22 Nov 2009 21:45:22 +0000

Probably $30,000. You are taxed on allocations, not distributions.
If you are a passive partner in a partnership that has only passive income to you, then $30,000 is the answer.
If you are a partner and materially participate in the parts of the business of the partnership, you might have active income as well, if any is allocated to you.
Portfolio income is also a possibility — if any is allocated to you.
So simply knowing your allocated share of passive income does not tell the whole story — you have to check and see if there is any active income allocated to you and/or portfolio income.
If income is earned, but not distributed, you are still taxed on your allocative share of it.
If no income is earned, but part of the capital of the partnership is distributed, you are not taxed on that — it is return of capital.
But, bottom line — you are taxed on allocations, not distributions.
One way to think about it is that the partnership is like a cabin that has a round hole in its side wall through which a large sausage is being extruded into the cabin. A band saw inside the cabin cuts the sausage into disks, and the sausage disks are then sorted into piles — that is the allocation — one for me; one for you; two for George; one for me; one for you; two for George; etc.
We are taxed on the number of disks that have been put into our piles. Distribution is when someone flings the disks from our piles out of the window to the partners, who eagerly await on the lawn outside. Taxation does not depend on how many disks are thrown out the window, but rather how many were placed in your pile.

By: John's Secret Identity™

John's Secret Identity™ — Sun, 22 Nov 2009 18:07:20 +0000

It would be the combined income/profits from your percentage of the partnership and your earned income….$55K according to your example

By: Wayne Z

Wayne Z — Sun, 22 Nov 2009 15:26:45 +0000

I’ve never dealt with that situation in my life, but it seems fairly obvious the answer is $55,000.