How is a Family Limited Partnership (FLP) Taxed?
A Family Limited Partnership is typically taxed like a regular partnership whereby all income and deductions flow to the partners pro rata, based upon their Partnership interest. This can be altered by agreement, and certain tax laws may effect the income and deductions that flow through to each Partner. The Partnership must file tax returns with the Federal Government and distribute K-1’s to the individual Partners so that their share of the income and deductions of the Partnership can be shown on their individual 1040’s. Unlike a regular corporation, there is no tax imposed on a Limited Partnership and, unlike an S Corporation, there is generally no tax when assets are conveyed from the entity to its partners. Limitations that apply to S Corporation ownership do not apply to Family Limited Partnerships.
