member's basis
Kevin Crouse asks
Do member's basis in the club increase due to interest on cash accounts and dividends from stocks owned by the club?
Do member's basis in the club increase due to capital gains incurred through the sale of club stocks?
Do member's basis in the club decrease due to capital losses incurred through the sale of club stocks?
Your questions show that you have a very good understanding of what a member's basis in a partnership is all about. The answer to all of the above is YES.
My questions stem from the fact that one of our members cashed out mid year. We sold a stock before he left, so he gets part of the capital losses from that transaction.
Yes, but as you have indicated, that part of the capital loss so allocated will decrease his basis, so on disposition of his interest his gain will be that much larger. The IRS giveth and the IRS taketh away.
How does the departing member handle the capital gains (losses) on his individual tax return for line 22 of his K-1?  I assume he uses his cost basis in the club to calculate the gain/loss on the payoff he received and reports that on his 1040 Sched D (in addition to his share of the club's capital loss on the stock we sold before he left).
He will make an entry on Schedule D of his individual 1040 for the disposition of his partnership interest. The amount on Line 22 will be the Sales Price (Column d).  As you have indicated, the
Cost (Column e) will be his basis as determined above. In addition to the entry for the disposal of his partnership interest, he will enter his allocable share of partnership gains and losses on either Line 5 or Line 12.
I hope this answers your questions. If not, please come back. Yours was an inquiry which will provide good information to a number of our users.
Rip West
Ridgway, CO