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My wife was in an investment club for 7 years and finally decided to get out of it so there are 7 K-1's for previous years (if we can find all of them.). We know how much total she put in the club from her records in Quicken and also how much she paid toward miscellaneous expenses of the club which I presume are deductible. What she put in to the club is more than she got out at the end (not including the miscellaneous contributions). I've been unable to find out how to handle this on the tax form. Do we go back to the previous K-1's and add up all the losses (minus profits) previously claim and then subtract these from her total losses (what she paid into the club and what she got back.)?

I have been unable to find out how to handle this. I've heard you have to go back and recalculate everything but don't know quite what that means. Is there something that explains how to do this in simple
English?


You're making things far too complicated. There are two types of numbers you have to report in the final year of membership. First, she will have to report her share of the club's regular income/expense which should have been reported to her on a "final" K-1. This is what she should have been doing every year.

Second, she needs to report her gain or loss on membership in the club. The club should have issued her a withdrawal report. This report will contain her adjusted cost basis and net proceeds upon withdrawal.

You enter these numbers on Schedule D as a long-term capital transaction:

Description: ABC investment club
Date bought: [date entered club]
Date sold: [date withdrawal paid]
Sale price: [net proceeds]
Cost basis: [adjusted cost basis]
Gain/loss: calculated value

If the club did not provide a withdrawal report, you can generate her cost basis by hand by adding up all of the capital she contributed, adding in all of the income reported over the years on Schedule K-1, and subtracting all of the expenses reported over the years on Schedule K-1.

If the club uses any of the club accounting software, (NCA, NOCA, or bivio) the withdrawal report is calculated automatically.

Ira
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