Many years ago, I was a partner in a real estate investment structured as a partnership. About 2007, we decided to liquidate the property and the partnership. We were left with a judgment against a former tenant in connection with a lease payment dispute. Fast forward to today, the former tenant has advised that he will be settling the judgment. We plan to distribute the settlement funds on a proportional basis to the retired partners. How do we report this income?TIA,
I would report it in the same way it would have been reported earlier. I'm guessing that it would have been rental income. It's quite possible some part of it is interest. If so, report that part as interest. --Peter
Thanks for your reply. In the past, this would have been reported on the partnership return with a K-1 distributed to each partner. At this point, the partnership does not exist.
In the past, this would have been reported on the partnership return with a K-1 distributed to each partner. At this point, the partnership does not exist.If the payment is being made to the partnership, or to one member on behalf of the partnership, and then divided by that member among the former partners, my take would be that the partnership has been re-established, and would need to file one more tax return and issue one more K-1. If the payment is being made directly to each individual former partner, not to the partnership or a single member who divvies it up, then each individual partner would need to report it where the income from a K-1 would have placed it - presumably on Schedule E for the rental income and on Schedule B for any interest income. But you should probably consult with the attorney who oversaw the dissolution of the partnership to be sure.AJ
In the past, this would have been reported on the partnership return with a K-1 distributed to each partner. I was thinking of "the same" in a bigger picture sense. Meaning that each individual former partner would report the income the same way it would have passed through from the partnership. So the rental portion of the judgement would be reported as ordinary income, subject to the passive activity rules (if that makes a difference for the individual partner). The interest portion would be reported as interest income on schedule B (or directly on the 1040 if that schedule is not required). I wouldn't file a partnership tax return unless there were some compelling reason to do so.--Peter
This is a little late, ut I have a few questions. It sounds as if the partnership filed its final return a long time ago. However, you have de facto reopened the partnership with this payment. I would presume that the judgement that was issued was in the name of the partnership, so the check will be issued to the partnership. The partnership is reopened for this payment, and the funds are disbursed to the partners. The partners then pay tax on their distributive share of income.
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