add wisdomAdd Wisdom

Contribution of partnership with negative capital




A client wants to donate his partnership interest to a public charity. It is a real estate partnership, with negative capital of $200,000 (his actual outside tax basis) but with $400,000 qualified nonrecourse financing. Assuming the value of the interest is $10,000 and the client is just trying to escape the recapture tax, can he do that? My initial thought is that he can't.

*.*
Part sale - Part Gift rules §1000 et seq. (too lazy to look but §1011 feels right) Sale of interest to the extent of debt relief, gift/donation for excess.

*.*
(am wondering how he got a negative outside basis - creative accounting work? )

*.*
With regards to Kevin's comment, perhaps I am using the wrong terminology, but it is not uncommon with real estate that the original capital is more than wiped out by losses and you get bssis to continue to deduct the losses to the extent of qualified nonrecourse debt. Perhaps I should have said that capital (but not outside tax basis) is negative. In any event, do you concur with Dennis about the tax treatment?

*.*
you definately have to factor in debt relief.