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Partnerships have both positives and negatives from a tax perspective. The psoitive is that you generally avoid the double taxation that takes place with companies that do business as standard corporations. In general, the partnership pays no income tax. Instead the income is taxed at the partner's level, which is why you get a K-1.

The negative is that partnerships can be incredibly complex from a tax perspective. Ordinarily, distibutions from a partnership are NOT taxable to the partners. Instead, you report your share of the partnership's income and deductions as shown on the K-1. Therefore, the distributions you received will probably not be taxable to you and you won't have to report it on your 1040, unless those distributions were greater than your basis in your partnership interest. Note: your tax basis in your partnership interest is NOT shown on the K-1. It is up to you to keep track of it.

WARNING: I am a retired CPA and I am NOT entirely up to date on the current status of partnership taxation. The following is a very general description and may not fit your particular situation. Also, there may be changes in the partnership tax rules of which I am not aware. With those caveats, the following may be helpful to you.

Calculating your basis in your partnership interest can get very complex. Your tax basis in your partnership interest may or may not be the same as your partner's capital account. Your basis in your partnership interest will vary depending upon what kind of partnership it is and what kind of partner you are (a general partner, a limited partner, etc.) Typically, your starting basis in your partnership interest is equal to what you paid for it (if you purchased it from someone else) or what you initially contributed to the partnership. Your basis constantly changes. It increases by the amount of any capital contributions you make to the partnership as well as by your share of the partnership's income, which you report as income on your 1040. Your partnership basis decreases by the amount of any distributions you receive from the partnership (in cash and/or property) as well as by your share of any partnership losses or deductions, which you report on your 1040. Some partners (e.g. general partners) also include in their basis of their partnership interest their share of certain of the partnership's liabilities.

From the IRS perspective, if you have recieved distributions from the partnership that are greater than your tax basis in your partnership interest, you are treated as having a taxable gain to report on your 1040.

Odds are the distributions you received were not greater than your partnership interest, but they could be. If you have a professional prepare your tax return, consult with him or her. Otherwise, the first thing I'd do is contact the person at the partnership responsible for preparing the partnership returns. They may be able to help you.

Good luck!
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