Learn how you can minimize general partner taxes.
Below is an example of how you can not only minimize general partner taxes but also minimize limited partnership tax liabilities. This works best for limited partners or members of a Limited Liability Corporation who are taxable investors, versus non taxable investors.
- Your firm invested $5,100,000 in Series A and Series B Preferred shares of NewCo.
- Things did not work out as well as you and your general partners expected. The technology was late and missed the market window. Senior management turned over. The Company did a recap.
- You chose not to participate in the recap round. Liquidity, if any, looks years away. You have written down the portfolio value to $100,000.
- If you exit the NewCo position today, you would realize a $5,000,000 loss.
- The good news is that your fund has a $3,000,000 gain this year from a profitable exit on its investments on OtherCo.
- So you sell CapGain Solutions ~60% of your position in NewCo this year for a net $3,000,000 loss on that investment.
- The loss on NewCo offsets all of your gain in OtherCo, thereby shielding the General Partners and Limited Partners against taxes on their gains from your OtherCo distribution.