Partnership Tax Return

[Peter Kandra]

This is mostly a theoretical question for now, but will most likely become valid in 5 years or so. I own several properties with a neighbor of mine that we operate under an LLC. We file a partnership form 1065, and we each get a schedule K-1. 2007 was our 2nd year operating. Our balance sheet on the form 1065 is currently what would be expected. The properties minus accumulated depreciation equals our loan balance plus partner capital. My question is what happens in several years when the accumulated depreciation is much larger than the mortgage principal reduction and exceeds our partner capital account ? It's my understanding that partner capital accounts may not be negative. My wife is an accountant, but I like to have a full understanding of the numbers side of the business just for my own warm and fuzzy feeling.