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How to handle zero basisYes, I've been reading, rereading, and reading again the reply from rock-n-rent from last year (msg 12494) regarding zero basis, nonrecourse liabilities, and 6198 at risk rules. http://beta.investorvillage.com/smbd.asp?mb=5028&mn=12494&pt=msg&mid=8762983 It's actually starting to make some sense to me (now that's scary in itself). I'm going to play with TTax and form 6198 at risk to see how it plays out but I'm guessing this is what I'm learning. 1. I don't actually have to report taxable distributions in excess of basis this year if I take my nonrecourse liabilities into account. 2. I would however have to fill out form 6198 because the additional losses in box 1a are no longer at risk. This will have the affect of separating carry forward losses allowed on final sale versus those that are not, so one can determine their true basis. 3. RnR states that the losses limited by 6198 can carry forward on form 6198 but are not useable when one has a final sale. Therefore, I assume this means they don't get to be carried forward as part of K-1 box 1 carry forward losses limited by the passive loss rules. This actually makes sense to me now because one shouldn't get to use those losses on a final sale because they are beyond ones basis (hopefully experimenting with TTax will bear this out). 4. I'm thinking one may have the option of ignoring the nonrecourse liabilities when calculating basis and can avoid the form 6198 in return for paying CG on distributions in excess of basis early (based on non liability basis), since this just means one defers less tax into the future so not likely the IRS would complain (kinda like taking standard depreciation instead of accelerated depreciation on stuff). 5. If that all turns out correct I'll need to decide whether to recognize CG on excess basis distributions this year and keep my returns simpler or to utilize form 6198 and defer it longer into the future. Since I did large amounts of tax loss harvesting in the 2008-09 crash I have CG loss carryovers that will last for several more years so there won't be any immediate cost to me if I decide to keep it simple. I'll have to see how convoluted the TTax form 6198 gets before I decide which way to go. Bottom line is that even tho this is more complicated, it does make more intuitive / logical sense to me, now that I understand the allowed carry forward losses (passive rules) are segregated from the carry forward losses due to the at-risk rules (F6198), so that if one sells all, they have a way to determine the true basis on which to be taxed. I just hope tomorrow when I re-read my post, it still makes sense! ;) |
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Msg # | Subject | Author | Recs | Date Posted |
113 | Re: How to handle zero basis | lumpygravy | 0 | 3/9/2014 7:03:21 PM |