Footnote on Partner's K-1

[David]

A footnote on a partner's K-1 says that the accumulated production expenditure exceeded the partnership's traced debt. Therefore, the partners are subject to the interest capitalization ruleson their share of the production expenditures as if the partners themselves had incurred the production expenditures.

Your share of the total excess production expenditures: $15,105

Interest included in rental income/(loss) at an average rate of 3.74% is: $564

How is this handled and where is it reported?

Thanks.

[Abby Normal]

I don't know but I've been seeing that error message all year and wondering what it was about. I wonder if it's a PTP and the losses are suspended, does it really matter?

[jklcpa]

That's not an error message but a footnote that's actually been required since the tax act of 1986 and fall within the scope of sec 263A interest cap rules and the related party rules.

The article below gives an overview of when costs are required to be capitalized, possibly even some costs outside of the partnership.  It also talks about when capitalizing might not necessary under deminimis rules depending on the level of ownership but that related party rules must be considered before making a final decision on that.

http://www.gilaberttax.com/2013/03/26/avoided-cost-k-1-footnotes/

Edited October 7, 2015 by jklcpa
fixed link not working

[David]

Thanks for your help, Judy.

[jklcpa]

You're welcome. Glad I could help to clarify.