Cost Basis and Purchase of Units
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Cost Basis and Purchase of Units In Better Investing Voice Russell Malley says: One misconception is that the cost basis of the members is associated with specific purchases of units, with each purchase having its own cost basis similar to mutual fund shares. This isn't true. As general partnerships, investment clubs have different cost basis rules. A member (partner) has a cost basis in the club as a whole rather than for specific purchases. A gain is only realized when members receive more than their total cost basis in the club rather than more than the cost basis in some specific units. < See http://blog.betterinvesting.org/?p=8350&utm_source=MailingList&utm_medium=email&utm_campaign=BI+Weekly_8-18-14 > Can anyone clarify his statement? I have been a Treasurer for 16 years and can't explain this to my partners. Hi Michael, What many people don't realize is that when you make a contribution to your investment club, you are investing in a partnership. This is ownership in a capital asset. As such, you have a basis in your investment. When you ultimately withdraw your assets from your club, you have tax consequences which you will need to report as a capital gain or loss. The amount of the gain or loss will depend on your tax basis in your club and the value that you withdraw.Hope that helps. Laurie Frederiksen
Invest with your friends! www.bivio.com Become our Facebook friend! www.facebook.com/bivio Follow us on twitter! www.twitter.com/bivio Follow Us on Google+ Click here to Subscribe to the Club Cafe email list. Click here to Unsubscribe The Club Partnership retains the income it earns from dividends and sales of stock. It does not usually distribute these earnings, but instead the earnings are reinvested. Each partners share of the earnings are taxed via the information reported on the K-1. Since you are already taxed on money that is not distributed, your tax basis will increase by gains and losses reported on the K-1. That avoids double taxation. If you invested $5,000 in the partnership and were taxed on $800 (on your K-1) over a 2 year period, your tax basis would be $5,800. If you then sold your units in the partnership and they were worth $6,000 (representing unrealized capital gains), you gain on the sale would be just $200 to be reported on your Form 8949 or Schedule D. ($6000 sale price and $5800 cost basis). You only capture unrealized gains and losses upon the sale of your units. A partial withdrawal, may or may not result in a reportable gain, depending on whether you received more money from the withdrawal than your tax basis. I hope that helps. Linda -----Original Message----- From: club_cafe@bivio.com [mailto:club_cafe@bivio.com] On Behalf Of Michael B Jones via bivio.com Sent: Tuesday, August 19, 2014 1:08 PM To: club_cafe@bivio.com Subject: [club_cafe] Cost Basis and Purchase of Units In Better Investing Voice Russell Malley says: One misconception is that the cost basis of the members is associated with specific purchases of units, with each purchase having its own cost basis similar to mutual fund shares. This isn't true. As general partnerships, investment clubs have different cost basis rules. A member (partner) has a cost basis in the club as a whole rather than for specific purchases. A gain is only realized when members receive more than their total cost basis in the club rather than more than the cost basis in some specific units. < See http://blog.betterinvesting.org/?p=8350&utm_source=MailingList&utm_medium=em ail&utm_campaign=BI+Weekly_8-18-14 > Can anyone clarify his statement? I have been a Treasurer for 16 years and can't explain this to my partners. --- This email is free from viruses and malware because avast! Antivirus protection is active. http://www.avast.com |
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