QWin 2015: How do I record and keep track of a Real Estate Limited partnership. Capital invested. A

Mark Richards

How do I record and keep track of a Real Estate Limited partnership where I am a limited partner.  I invest Capital up front.  Then after a year or so I get an annual return,  As the R/E Dev gets completed I get a returned of Capitol ( my initial investment usually in several payments, then lastly and hopefully a profit.  I am using Quicken for Windows 2015.

NotACPA

Create an Investment account for ALL of these transactions ... it IS an investment, No?

Tom Young

You should take some time to educate yourself how, as an investor, you need to keep track of your basis in the partnership and the income and expenses of the partnership that are "passed through" to you via the Schedule K-1. 

The important point to understand is that you, personally, will recognize income and expense independently of any cash paid out by the partnership, and this income and expense activity does affect your basis in the partnership.  So, mechanically, you should anticipate making entries into Quicken that have no associated cash flow.

I have no idea what "annual return" refers to - that expression is just too vague - but typically money distributed by the partnership to partners is a return of capital, it's not "income" it's not "profit."  When the cumulative returns of capital amount to more than your adjusted basis, then you do have capital gains, or if you actually sell your partnership units for more or less than your adjusted basis then you have capital gains or losses.

You can properly do this accounting in Quicken but you have to make sure your accountant - you - knows what he's doing.

Vetta

Tom is 100% correct, and if you do not understand partnership interests and try to handle your own taxes you are courting disaster.

Mark Richards

Ok, Gentlemen.  Thanks for your input.  I am not doing my own taxes, I depend upon documents provided by the Partnership's CPA & pass that on to my own CPA for that.  I am just wanting to keep an accurate accounting of my investment on my Quicken Software.  I don't know the mechanics of how I would show this transaction.  Here's how the income goes: I have my original investment which I pay to the Partnership.  I wait a period of time and the partnership (real estate development) generates some revenue by selling lots to Builders.  They pay bills and reduce debt and then they pay the excess to the limited partners as a return on investment of 8%/per annum.  They do this until their excess revenue has repaid all bills and loans, then they begin to repay my original investment in partial payments.  So when my original investment is repaid they quit paying me the 8% return on my investment and then they start paying me profit (yes!!)  So this is the process.  

Now how do I show this in quicken.  The money for my original investment comes out of my Bank Savings account.  I can't show a share of stock in my Savings account so I create a dummy Investment account.   In quicken do I show a transfer of funds into the dummy account and then show that I bought the Limited partnership from there?  If so do I call it a stock purchase?  And when I start receiving money back from the Partnership, how do I show that when I really don't put any money in the investment account, I deposit it back in my savings account? 

NotACPA

Mark Richards said:

Ok, Gentlemen.  Thanks for your input.  I am not doing my own taxes, I depend upon documents provided by the Partnership's CPA & pass that on to my own CPA for that.  I am just wanting to keep an accurate accounting of my investment on my Quicken Software.  I don't know the mechanics of how I would show this transaction.  Here's how the income goes: I have my original investment which I pay to the Partnership.  I wait a period of time and the partnership (real estate development) generates some revenue by selling lots to Builders.  They pay bills and reduce debt and then they pay the excess to the limited partners as a return on investment of 8%/per annum.  They do this until their excess revenue has repaid all bills and loans, then they begin to repay my original investment in partial payments.  So when my original investment is repaid they quit paying me the 8% return on my investment and then they start paying me profit (yes!!)  So this is the process.  

Now how do I show this in quicken.  The money for my original investment comes out of my Bank Savings account.  I can't show a share of stock in my Savings account so I create a dummy Investment account.   In quicken do I show a transfer of funds into the dummy account and then show that I bought the Limited partnership from there?  If so do I call it a stock purchase?  And when I start receiving money back from the Partnership, how do I show that when I really don't put any money in the investment account, I deposit it back in my savings account? 

I create a dummy Investment account.   EXACTLY

In quicken do I show a transfer
of funds into the dummy account and then show that I bought the Limited
partnership from there?  THAT'S IT.  YOU CAN ONLY HOLD INVESTMENTS IN AN INVESTMENT ACCOUNT.

If so do I call it a stock purchase?  EITHER A "STOCK" OR "MUTUAL FUND" PURCHASE WOULD WORK ... BUT YOU HAVE TO CREATE THE SECURITY IN YOUR SECURITY LIST BEFORE YOU BUY IT.

And when
I start receiving money back from the Partnership, how do I show that
when I really don't put any money in the investment account, I deposit
it back in my savings account? FIRST, IT HAS TO BE RECEIVED INTO YOUR INVESTMENT ACCOUNT AS A DIVIDEND, INTEREST, RETURN OF CAPITAL, ETC.  THEN, YOU CAN HAVE THE FUNDS TRANSFERRED TO YOUR SAVINGS/CHECKING ACCOUNT.

Tom Young

Mark Richards said:

Ok, Gentlemen.  Thanks for your input.  I am not doing my own taxes, I depend upon documents provided by the Partnership's CPA & pass that on to my own CPA for that.  I am just wanting to keep an accurate accounting of my investment on my Quicken Software.  I don't know the mechanics of how I would show this transaction.  Here's how the income goes: I have my original investment which I pay to the Partnership.  I wait a period of time and the partnership (real estate development) generates some revenue by selling lots to Builders.  They pay bills and reduce debt and then they pay the excess to the limited partners as a return on investment of 8%/per annum.  They do this until their excess revenue has repaid all bills and loans, then they begin to repay my original investment in partial payments.  So when my original investment is repaid they quit paying me the 8% return on my investment and then they start paying me profit (yes!!)  So this is the process.  

Now how do I show this in quicken.  The money for my original investment comes out of my Bank Savings account.  I can't show a share of stock in my Savings account so I create a dummy Investment account.   In quicken do I show a transfer of funds into the dummy account and then show that I bought the Limited partnership from there?  If so do I call it a stock purchase?  And when I start receiving money back from the Partnership, how do I show that when I really don't put any money in the investment account, I deposit it back in my savings account? 

" I depend upon documents provided by the Partnership's CPA & pass that on to my own CPA for that.  I am just wanting to keep an accurate accounting of my investment on my Quicken Software."

I guess it comes down to what you consider "accurate".  Making entries based only on cash flows won't do that. 

If you just feel that you need to make some entries in Quicken and are confident that the tax issues are being handled by someone else, you'd probably be as well off, and probably less confused, if you simply enter all cash receipts either as a return of capital or some Category called, maybe, "partnership income."

Perhaps use returns of capital until the basis is driven to $0, (I don't know if Quicken "allows" negative basis or not), and then after that use the partnership income Category.  Meanwhile your CPA will be preparing the income tax returns and when you receive your last dollar from the partnership you'll have no further investment in the partnership (basis of $0) consistent with the real world and some amount of "partnership income" that should, very generally, correspond with income that's been reported over the years on income tax returns.