Solved: Lacerte Reducing Partner's Basis by UPE?

nolacpa · ‎12-07-2019

My client is a partner in a law firm. He has UPE that is not reported through the K-1 (for purposes of this question, please assume the UPE is allowed by the partnership agreement etc). When I enter the UPE on Lacerte screen 20.1, the UPE shows up as expected on Schedule E. But it also reduces the partner's basis. I thought that UPE was not supposed to affect basis. If this is the case, do I also need to make an offsetting adjustment as Other Current Year Increase to Basis in the basis limitation section of the screen? Thank you in advance.

George4Tacks · ‎12-07-2019

Yes. TP spent money for the LLP, so that is an addition to the basis. Pretty much just a debit and a credit for the same amount for the expenses.

Here's wishing you many Happy Returns

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George4Tacks · ‎12-07-2019

Yes. TP spent money for the LLP, so that is an addition to the basis. Pretty much just a debit and a credit for the same amount for the expenses.

Here's wishing you many Happy Returns

nolacpa · ‎12-07-2019

THANK YOU. Apparently during the heat of tax season I lose sight of the basic accounting. Really appreciate the confirmation.

Ed-6-2 · ‎02-02-2023

Hi, George. If you're still out there, do you have a citation for the statement that UPE should be added to basis (and if so, I assume it would be added to "Increases for the tax year" on Form 6198 Part II Line 7, yes?)?. It makes sense. It would be great if it's true. But if I'm going to report that on an original or amended 1040, I would like to be able to cite the reg or other authoritative source. Please let me know. Thanks!

Strongsilence-CPA · ‎02-02-2023

Not george, ....

I think it through with DRs and CRs. The ptsp gets the debit, which is an expense, while the credit is either a loan payable, a contribution, or a reduction to distributions. Either of these 3 choices increases the partner's basis. Does this make sense?

I don't think this qualifies as an amount at-risk because this is a type of non-recourse loan, though not really a loan. That is my reasoning.

I like your question.

From the 6198 instructions: Amounts Not at Risk
You are not considered at risk for any of the following.
1. Nonrecourse loans used to finance the activity, to acquire property used in the activity, or to acquire your interest in the activity (unless the nonrecourse loan is secured by your own property that is not used in the activity)

TaxGuyBill · ‎02-02-2023

@Ed-6-2 wrote:

on Form 6198

As was mentioned above, Form 6198 is not Basis (although At-Risk rules do have a Basis component).

ProSeries does not have a way to limit losses due to Basis (some people use 6198, but that is wrong), so you need to manually limit losses due to Basis.

Lacerte Reducing Partner's Basis by UPE?

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