What Is A "Limited Partnership"?

Partners who operate a business together as a "general" partnership are essentially each liable for any negligence of either partner and liabilities of the partnership. By comparison, a limited partnership is an entity formed to raise capital for business or investment ventures in which the partners (except for the managing or general partner) will not be participating in the day-to-day activities of the partnership, and will only be "at risk" for their own investment in the partnership.

A limited partnership is usually subject to the rules for passive activities, which may limit losses that exceed income or gains from this or other passive activities. Losses in excess of your investment and recourse debt may be non-deductible under the "at risk" rules.

If you are involved in a limited partnership, you may find your Schedule K-1 quite confusing, due to the complexity of the laws involved. Often, the partnership will provide supplemental information that will help you prepare your return from the Schedule K-1. If you run into problems, you may need to see a local tax professional for assistance.

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