I have a bookkeeping client that is a partnership. This partnership A owns 50% of another partnership B. They (B) issued the K-1. I have not had lot of these but in the past, I record the K-1 activity (income items and the distributions are usually are there) and my investment account on the partnership A book will match the K-1 ending capital account from B. I am new to this account but that is exactly what the prior accountant did also for the prior years. It worked in the prior years.

This year is it off. I asked the CPA that prepared the return. He said he thinks it is a book to tax depreciation difference, or atleast most of it is. I am not sure how to record that to make my investment account match the ending capital account on B's K-1. How do you book the extra $12,000? Should it be an other expense and take it this year or do I book a balance sheet account because I assume I will keep seeing this and eventually it would zero out (assuming new assets were not purchased) once book matched tax.

I guess for form 1065 Sch M-1 Book/Tax Differences adjustments, you need to add the excess depreciation expenses of $12K to your book income as part of deferred tax assets to arrive at taxable income.On the contrary, this means that tax depreciation in excess of book depreciation or accrued expenses which were not deductible in the prior year but which were satisfied in the current year are subtracted from book income to arrive at taxable income as deferred tax liaiblities, so vice versa .