Are you interested in investing in businesses that own and
operate real estate, gas and oil properties, or even equipment
leases? If so, there’s a chance you might end up owning an interest
in a limited partnership.
Are you interested in investing in businesses that own and operate real estate, gas and oil properties, or even equipment leases? If so, there’s a chance you might end up owning an interest in a limited partnership.
Limited partnerships consist of one “general” partner and, as the name suggests, one or more “limited” partners. Responsibilities of the general partner include raising money and investing the proceeds and managing the partnership’s operations. The general partner also takes on the bulk of the risk of the partnership. If the business fails, it’s up to the general partner to pay the outstanding debts.
Partnerships generally don’t pay any income taxes. Instead, the income flows through to the partners who pay taxes on their share of the income at their own rates. The good news is that the income retains its character. Let’s say the partnership realizes a substantial capital gain this year. Since you’ll report your portion of that income as a capital gain on your tax return, you can utilize your personal capital losses and loss carryforwards to offset that income.
Limited partnerships also pass their losses, deductions, and tax credits through to the partners each year. By claiming your portion of these items on your tax return, you might cut your tax bill substantially.
The losses and credits you can claim, however, are limited by various factors, including your investment in the partnership. This differs from the general partners, who can factor in the partnership’s liabilities when determining their allowable losses and credits.
