Mitt asked:
For financing purposes on an investment property, I sold my partner all but 1% of my shares (no compensation was received). My CPA tells me that this will trigger capital gains treatment on my negative capital account. Can’t my 1% ownership fully retain that negative capital account?
For financing purposes on an investment property, I sold my partner all but 1% of my shares (no compensation was received). My CPA tells me that this will trigger capital gains treatment on my negative capital account. Can’t my 1% ownership fully retain that negative capital account?
Being a CPA myself, I would tell you go with what your CPA is advising you. Not knowing how much your interest was beforehand, but by selling all but 1% of your ownership interest, you are effectively out of the company. And with the negative capital account you have taken more out of the company than you were entitled to. You have 2 choices, pay back the negative capital account, or take the capital gains.
The IRS will look at this as there being No Economic Subsatnce IRC 704(b) and I am not sure how no compensation was received but anyways the partnetship could take on debt to increase your basis if you didnt want to come up with the cash this year.