Partnership reporting 1256 contract gains

Technical topics regarding tax preparation.
#1
Posts:
1
Joined:
17-Aug-2022 11:26pm
Location:
California
1) Client (general partner) has a partnership with wife (limited partner). Partnership owns brokerage account.
2) Client manages the brokerage account and trades only 1256 contracts - futures / index products etc.
3) Passes on all ‘tests’ for trader status (holding period < 20 days, more than 5+ hours per day, at least 1K trades per year, trades for living). Planning to take home office deduction as UPE.

Questions:

a) Partnership has no ordinary business income. Profit reported by brokerage firm on 1099-B will go on 6781 and then flow into Line 11 of schedule K with Code C, and client will report them on their Schedule D (1040), correct?

b) Client wants to see if guaranteed payment from the partnership for managing the brokerage account may be a good option tax-wise? My inclination is to say no. partnership without any business income and only capital gains may be a red flag - any different take?

c) Client wants to inject additional capital into the brokerage account. Source of the money will be the 2nd mortgage on their house. I have strongly advice against the idea, but the question was if he decides to go down the route, can the 2nd mortgage interest be deducted by the partnership (assumption 100% of loan proceeds will go into the brokerage account)? If so, how? - since this is not an investment interest.

Thank you!
 

Return to Taxation



Who is online

Users browsing this forum: Google [Bot], keninmichigan, SlipperyPencil, wale89 and 120 guests