bookspec/examples/partnership-k1-tax-basis-capital.toml

# P3 (D-41): the K-1 worksheet reports tax-basis capital beside book capital.
id = "partnership-k1-tax-basis-capital"
title = "Schedule K-1 Item L on the tax basis: property contributed at its adjusted basis"
rule = "Each partner's capital account is reported on the tax basis: capital contributed is cash plus the adjusted tax basis of property contributed; the share of income is as figured for tax; distributions are cash plus the adjusted tax basis of property distributed. Book capital (property at fair market value) differs by the partner's share of the built-in gain or loss at contribution, and by every book-tax difference after; a figure the books cannot know (tax depreciation) is left to the preparer, never guessed."
status = "AUTHORITY"
sources = [
  "Instructions for Form 1065 (2025), Item L, Tax-basis method: Capital contributed during the year; Current year net income (loss); Withdrawals and distributions",
  "Instructions for Form 1065 (2020), Item L: 'you must use the tax basis method this year'",
  "26 U.S.C. §723",
  "Treas. Reg. §1.704-3(a)(3)(ii)",
]
tags = ["partnerships", "k1", "tax-basis", "capital"]

[setup]
currency = "USD"
fiscal_year_start = "01-01"
basis = "accrual"
rounding = "largest-remainder"
cash_accounts = ["1000"]

[[setup.accounts]]
code = "1000"
name = "Bank"
type = "asset"

[[setup.accounts]]
code = "1500"
name = "Equipment"
type = "asset"

[[setup.accounts]]
code = "1510"
name = "Accumulated Depreciation"
type = "asset"

[[setup.accounts]]
code = "3000"
name = "Capital, Tobin Harlow"
type = "equity"

[[setup.accounts]]
code = "3001"
name = "Capital, Morgan Ellis"
type = "equity"

[[setup.accounts]]
code = "4000"
name = "Sales"
type = "revenue"

[[setup.accounts]]
code = "6200"
name = "Depreciation Expense"
type = "expense"

[[setup.members]]
name = "Tobin Harlow"
capital_account = "3000"
share = "0.5"

[[setup.members]]
name = "Morgan Ellis"
capital_account = "3001"
share = "0.5"

# Two devices the members contribute jointly from personal use, 24-month
# lives: a laptop worth 1,440.00 (adjusted basis 1,688.40) and a camera
# worth 1,300.00 (adjusted basis 1,080.00).
[[setup.assets]]
id = "laptop"
description = "Laptop"
cost = "1440.00"
salvage = "0.00"
life_months = 24
in_service = "2026-01-01"
method = "straight_line"
cost_account = "1500"
accumulated_account = "1510"
expense_account = "6200"
acquired_by = 2
basis = { rule = "personal_use_conversion", contributor_adjusted_basis = "1688.40", fmv_at_contribution = "1440.00", sec704c_method = "traditional" }

[[setup.assets]]
id = "camera"
description = "Camera"
cost = "1300.00"
salvage = "0.00"
life_months = 24
in_service = "2026-01-01"
method = "straight_line"
cost_account = "1500"
accumulated_account = "1510"
expense_account = "6200"
acquired_by = 2
basis = { rule = "personal_use_conversion", contributor_adjusted_basis = "1080.00", fmv_at_contribution = "1300.00", sec704c_method = "traditional" }

[[events]]
date = "2026-01-01"
description = "Cash contributed"
lines = [
  { account = "1000", side = "debit", amount = "2000.00" },
  { account = "3000", side = "credit", amount = "1000.00" },
  { account = "3001", side = "credit", amount = "1000.00" },
]

[[events]]
date = "2026-01-01"
description = "Devices contributed jointly, at their values"
lines = [
  { account = "1500", side = "debit", amount = "1440.00" },
  { account = "1500", side = "debit", amount = "1300.00" },
  { account = "3000", side = "credit", amount = "1370.00" },
  { account = "3001", side = "credit", amount = "1370.00" },
]

[[events]]
date = "2026-02-01"
description = "Sale"
lines = [
  { account = "1000", side = "debit", amount = "600.00" },
  { account = "4000", side = "credit", amount = "600.00" },
]

# December's runs catch the year up (rules.md B-15): 1,440.00 x 12/24 =
# 720.00 and 1,300.00 x 12/24 = 650.00, dated Dec 31.
[[events]]
run_depreciation = { asset = "laptop", period = "2026-12" }

[[events]]
run_depreciation = { asset = "camera", period = "2026-12" }

[[events]]
date = "2026-12-15"
description = "Distributions"
lines = [
  { account = "3000", side = "debit", amount = "300.00" },
  { account = "3001", side = "debit", amount = "300.00" },
  { account = "1000", side = "credit", amount = "600.00" },
]

# Hand check, book, each: 1,000.00 cash + 1,370.00 property + (600.00 -
# 720.00 - 650.00) / 2 = -385.00 - 300.00 = 1,685.00.
[[expect]]
query = "k1"
from = "2026-01-01"
to = "2026-12-31"
values = { "Tobin Harlow.beginning" = "0.00", "Tobin Harlow.contributions_cash" = "1000.00", "Tobin Harlow.contributions_property" = "1370.00", "Tobin Harlow.net_income" = "-385.00", "Tobin Harlow.distributions" = "300.00", "Tobin Harlow.ending" = "1685.00" }

# Tax, each: property at its §723 basis, (1,688.40 + 1,080.00) / 2 =
# 1,384.20; income open (tax depreciation is the preparer's), known so far
# -385.00; ending known so far 1,000.00 + 1,384.20 - 385.00 - 300.00 =
# 1,699.20.
[[expect]]
query = "k1_tax_basis"
from = "2026-01-01"
to = "2026-12-31"
values = { "Tobin Harlow.beginning" = "0.00", "Tobin Harlow.contributions_cash" = "1000.00", "Tobin Harlow.contributions_property" = "1384.20", "Tobin Harlow.net_income" = "open", "Tobin Harlow.known_net_income" = "-385.00", "Tobin Harlow.distributions" = "300.00", "Tobin Harlow.ending" = "open", "Tobin Harlow.known_ending" = "1699.20" }

# Book less tax: the built-in gain share, ((1,440.00 - 1,688.40) +
# (1,300.00 - 1,080.00)) / 2 = (-248.40 + 220.00) / 2 = -14.20 =
# 1,685.00 - 1,699.20.
[[expect]]
query = "k1_reconciliation"
from = "2026-01-01"
to = "2026-12-31"
values = { "Tobin Harlow.beginning" = "0.00", "Tobin Harlow.built_in_gain_704c" = "-14.20", "Tobin Harlow.property_without_basis" = "0.00", "Tobin Harlow.property_distributed" = "0.00", "Tobin Harlow.total" = "-14.20" }

[[expect]]
query = "k1_tax_basis"
from = "2026-01-01"
to = "2026-12-31"
values = { "Morgan Ellis.contributions_property" = "1384.20", "Morgan Ellis.known_ending" = "1699.20" }