Final K-1 with large capital gains on line 9a

[SR588]

I received a Final K-1 with a large capital gains on line 9a. I only held this partnership for 5 months and the partners decided to sell out to a larger company. Could you please help explain how to report this? Right now the capital gains shows on Schedule D and I pay tax on it. Thanks a lot!

[MinhT1]

Line 9a reports your share of long term capital gains. The gains occurred while you were a partner and your share was allocated to you and reported on your Schedule K-1. You'll enter your schedule K-1 in TurboTax.

The amount of long-term gain will be transferred to Schedule D and you are liable for long=term capital gain tax on that amount. If you see that amount on Schedule D, then it has been correctly reported.

[SR588]

Thank you for your quick response. So you're saying the partnership gets me to pay their long term capital gains even though I did not see any of this money?

[DianeW777]

Yes. The capital gains reported on your K-1 is required to be reported on your tax return since this is considered to be your share based on your ownership percentage before you were out of the partnership.

[Rick19744]

@SR588 you replied that this gain is passing through and you didn't see any of that money.

That is not correct, and least from what your K-1 is reflecting:

• You should be maintaining a basis schedule of your investment in this partnership
• All applicable line items on your K-1 either increase or decrease your beginning tax basis every year.  This is fundamental to partnership tax.
• Specifically, this gain increases your tax basis.
• Your K-1 line 19 reflects a significant distribution of cash.
• You now need to also determine your gain or loss on this investment.
• You would adjust your tax basis for all applicable K-1 line items on this final K-1 EXCEPT for the amount reflected on line 19.  When you respond to the questions related to a final K-1, the amount on line 19 will be your "sales" price.  Your tax basis will be your cost basis.  TT will compute the overall gain or loss based on this information.

[SR588]

Thank you, Rick, this is very helpful. Could you please recommend a worksheet to calculate the basis, either in TurboTax or on the web? Thanks a lot!

[RobertB4444]

@SR588  TurboTax tips for calculating basis.

[Rick19744]

@SR588 see the attached instructions for some guidance; page 3.

I recommend putting together a simple excel worksheet, with the applicable items description on the side and each year across the top.

https://www.irs.gov/pub/irs-pdf/i1065sk1.pdf

[SR588]

Thank you, Rick! I calculated the cost basis and entered it in the Final K-1 step-by-step interview. The remaining problem is that the sale is also reported by Charles Schwab in the 1099-B, although with a different basis (this was a publicly traded partnership). Could you please help explain how do I correct this in turbo Tax?

[Rick19744]

Always complication with these type of investments:

• You need to determine which cost (tax basis) you believe is correct.
• Then you need to only report the gain in one spot
  • I would input the information in the K-1 step-by-step section to result in no gain or loss; essentially sales price equals cost basis
  • Then I would adjust the Charles Schwab information in the form 8949 section
  • See the instructions for adjustments codes (sorry my cut and paste function apparently is taking the evening off)
  • This will avoid any duplication 

[SR588]

Thank you, Rick, this is very helpful! Could I do the following instead:

1. Leave the Final K-1 report unchanged, with the real gain calculation.

2. Change the cost basis of the 1099-B entry imported from Charles Schwab to show the cost equal to the proceeds, essentially no gain from this transaction.

Would this work? Thanks again!

[RobertB4444]

@SR588  Either method would work for the same end result to your bottom line.  The 1099-B is more highly scrutinized for form matching is all.