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How's are the rent prices in jersey city now?
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Anyone quit the job after one week? Is is ok?
Turns out that the K-1 shows the remaining installment obligation to my partner on 20P. The total was $300k which is well below threshold. Thanks again all! Always be wary of lower tier K-1s. The presentation could have cost my client $300k
They should provide all the info you need to calculate, but if it’s just one number, it’s likely the 453A interest amount (interest is a misnomer - it’s really additional tax) for an installment sale elected at the PTE level (not technically correct, but I’ve seen done in a tiered structure to simplify reporting).
453A is treated as an additional tax. It’s basically a small fee the IRS charges someone each year to defer a gain (via installment sale) above a certain amount.
Wouldn’t hurt.
Also just saying the k-1 did this (hopefully you don’t prepare) & benefit is significantly greater to stretch out the gain hit (and resulting tax) over several tax years is an easy out. That’s a huge gain deferral if the 453A interest is significant.
Mentor
I thought only applied if partner level share of deferred gain exceeds $5m. I don’t deal with this much so I could be wrong.
Subject Expert
The partner, your client, needs to meet the threshold of $5M based upon their share of the outstanding proceeds left to receive.
I’d check with the preparers of those K-1s. There’s a good chance that the firm who prepared the 1065 let the software do its magic, which means the amount reported on your partners’s K-1 is likely their share of the deferred gain. I’ve personally never seen a firm do the complete 453A calc at the PTE level when the PTE is holding the installment note.
Assuming your client is subject to 453A, you’d need to multiply that deferred gain on the K-1 times your partners tax rate (likely 20 or 23.8%), and then multiply the the deferred tax times the underpayment rate - not sure what 2020 Q4 is off the top of my head. That final amount is the 453A charge that gets included as an additional tax. So if your client is over the 5M, for a 20k gain deferral, it’d be 20k x .238 x .03 = $143. (Assuming the underpayment rate is 3% and they’re subject to NIIT)
If you are under the threshold mentioned above then remove the inputs. The scanning software will pick up 453A footnotes automatically. If the client is under the threshold then there shouldn’t be a tax. I have never found a way to suppress tax associated 453A from showing up besides simply removing the inputs in the k1 activity.
Subject Expert
Same