[Anonymous]

Does self-employment income include capital gains? My understanding is that they are stated separately on Sch. D, am I correct?

[Anonymous]

Yes, capital gain goes on SCH D and is not included in self employment income. Self Employment income will come from SCH C business income and/or box 1 + 4 of a partnership K-1 (ordinary business income/loss + guaranteed payments to partner). I am 95% sure on this, if anyone sees that I am wrong please correct me.

[jeff]

Correct – they are separate.

[Anonymous]

Thanks, guys!!

So even if you receive capital gains from a partnership…are they still on Sch D? Let's say your share of ordinary income (from parternship) is -$10,000 and your share of capital gain is $5000…you can't net them? I think you can, right…?

[Anonymous]

No, you can't net ordinary income/loss with capital gain/loss. The ordinary loss will go to your 1040 SCH E and the capital gain will go to your SCH D.

[Anonymous]

Don't forget that capital gains/losses are not included in the calculation of ordinary income for a partnership. Capital gains/losses will go to SCH K on the 1065 and will pass through to each partners K-1 based on their % in the partnership.

[Anonymous]

So that means partnership basis will be reduced by that ordinary loss, right? But also increase b/c of capital gain?

I understand that it's separately stated income/loss…but I'm not quite sure what impact it would have on the basis. I'm getting MCQs right when I do them, but I feel like I'm not understanding the big picture.

[Anonymous]

Yes, a partner's basis will be decreased by an ordinary loss, but the loss that can be recognized on the partner's 1040 is limited to the partner's basis. Any disallowed loss can be carried forward indefinitely. Also, capital gains increase a partner's basis, but guaranteed payments have no effect on basis.

[Anonymous]

Perfect, thank you so much!! Really appreciate it!!

[Author]

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