Definition. The basis limitation is a limitation on the amount of losses and deductions that a partner of a partnership or a shareholder of an S-Corporation can deduct. The basis limits are the first of three limitations that are applied to Schedule K-1 losses and deductions.

Is capital account the same as inside basis?

Earnings are distributed to each partner’s capital account from which distributions are charged against. The inside basis is the partnership’s tax basis in the individual assets. The outside basis is the tax basis of each individual partner’s interest in the partnership.

What do you need to know about a partnership K-1?

• Recognize the impact of the Tax Cuts and Jobs Act (TCJA) on the Partnership K-1 and partner. • Determine the appropriate Form 1040 reporting for certain K-1 line items. • Identify how information flows through to a partner under the new Section 199A -Qualified Business Income (QBI) deduction. 3 Partnership K-1 overview

What are the limitations on loss reporting on K-1?

Partnership & S-Corp Loss Limitations Partners and shareholders of S-Corporations are subject to three separate limitations on the losses and deductions reported to them on Schedule K-1. The first of these limitations is the basis limitation, which limits the losses and deductions to the adjusted basis in the activity at year-end.

How does the sale of a partnership interest work?

>Sale of partnership interest – Gain or loss from the sale of a partnership interest equals the difference between the amount realized and the adjusted basis. Section 1001. – Amount realized equals the sum of any money received plus the FMV of the property (other than money) received. Section 1001(b).

How is the basis of a partnership reduced?

In a current distribution, the partner’s basis is reduced first by the amount of any cash or marketable securities received in the distribution and then any property distributed takes a basis equal to the partnership’s basis in the property immediately before the