So you just got your K-1 and you want to figure out exactly what this means, what you own and if it has any value. When evaluating individual limited partnership interests, there are several factors to take into consideration for determining the value. Each partnership is a unique scenario and should be looked at as such.
History of Syndicated Limited Partnerships
The vast majority of syndicated limited partnerships were formed in the 1970’s and early 1980’s. The original limited partners were typically high-income earners that wanted to take advantage of accelerated tax write-offs being offered by these partnerships. At the time when these partnerships were being formed the top federal tax rates where above 60% thus making the investment attractive to individuals with sophisticated financial planning and financial advisors. These partnerships for the most part performed their original purposes and the original limited partners received a substantial return on their investment in the early years via tax savings. In 1986 the tax laws changed under the Regan administration and as a result the benefits of the partnerships were substantially reduced.
Valuing a Limited Partnership Interest
Below is an explanation of the general framework we use to help determine our opinion of secondary market value for individual limited partnership interests. First, one must determine what the entity owns and the underlying value of what it owns. The process for determining what exactly an entity owns and what its share of that entity can be extremely difficult. LP Equity has a team of dedicated and experienced researchers that utilize many public and paid information sources in order to ascertain what a particular partnership owns. Once that piece of the puzzle is found, next is gathering the necessary information about the asset in order to determine its value.
In addition to determining the value of what the partnership owns one must further assess the functions and attributes of the partnership including encumbrances, debts, partnership agreements, amendments, governmental restrictions, and any other constricting factors of the partnership. In many partnerships a limited partner’s share of profit and loss (the percentage on the K1) can be different than his or her share of the equity in the partnership. As you can imagine, this can have a drastic impact on the value of a particular limited partnership interest. Since we are evaluating passive, traditionally illiquid, non-controlling, and typically fractional ownership for these entities, this must be accounted for in any kind of evaluation as well.
Opportunity to convert your K1 to Cash
There is a lot that goes into evaluating a limited partnership interest, but fortunately our team at LP Equity has the necessary experience, skills, and access to information sources that allow us to evaluate your partnership interest in a timely and confidential manner. In most circumstances all that is needed to make an offer are the K-1s issued by the partnership over the last two years. The K-1s will allow us to confirm your current ownership percentage and verify any annual distributions the partnership is making so that we can accurately account for them in our offer.
By allowing LP Equity the opportunity to make an offer proposal you will gain insight into the potential value of your interest. Even if you decide not to sell your interest at the time the offer is made, you will have a better understanding of what you own and what the future might hold for the partnership you are a part of. We are here to help, contact one of our team members to get the process started for your no obligation and confidential offer proposal today!