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

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.

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?

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.

@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.

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!

@SR588  TurboTax tips for calculating basis.

@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

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?

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 

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!

@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.