Figures: tax year 2026
The partnership generally makes elections governing the computation of its taxable income, including accounting methods and the partnership tax year. Individual partners make designated personal elections and apply their own limitations to separately stated items.
Separately stated items retain distinct reporting because their tax consequences depend on each partner's circumstances, including other income and deductions. Passing an item through to partners does not transfer the partnership's authority to select the underlying accounting treatment.
Election ownership and continuing effects
KEY: Election ownership determines who selects the tax treatment. A deduction allocated to a partner can originate from an election made by the partnership.
The required tax year follows the owners' tax years through an ordered hierarchy. The partnership tax year determines which annual partnership results enter each partner's return: generally, those from partnership years ending within or with the partner's year.
Required-year priority
A majority-interest year controls the partnership tax year when partners sharing one tax year own more than 50% of both profits and capital. Exactly 50% fails.
Common mistakes
- Exactly half as a majority. Cedar's 50% ownership fails the first test; the 51% variant satisfies it.
- Partner controls every deduction. An individual partner cannot replace the partnership's depreciation election merely because deductions pass through.
- Three months automatically available. An existing required year has zero deferral, which can prevent switching to a fiscal year through the alternative-year election.
Bottom line
- The partnership generally controls accounting, depreciation, immediate-expensing, tax-year and property-basis elections.
- Each partner chooses foreign-tax treatment and applies mandatory utilization rules to separately stated capital losses and charitable contributions.
- Required-year priority is majority interest in both profits and capital, then the common principal-partner year, then least aggregate deferral.
- Business-purpose years and limited-deferral elections are separate routes; the election carries eligibility limits and required-payment obligations.
Exam shortcut
For an election question, mark the actor first. Distinguish the entity's accounting decision from the owner's use of a passed-through item. On a tax-year roster, group owners by year-end and check profits and capital separately. Stop when a hierarchy test controls. When the stem proposes a fiscal year, identify whether the partnership is newly adopting or changing an existing year. Then locate business-purpose support or alternative-election eligibility.
The full lesson (about 3,660 words, 24 min read) adds 5 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- II.C2
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