Final K1 Statement Real Estate LLC Determining Adjusted Basis

[embedded_guy]

Hi,

I invested in an real estate investment LLC. I have been trying to track my adjusted basis using the K1 statements I have received. I haven't included any of the K1 box 20, Other Information in any of the adjusted basis calculations. I've been trying to follow the IRS i1065sk1 worksheet.

The properties were sold in 2022 and distributions were made that year. I entered the K1 info as prior years. The LLC was dissolved last year (2023) and I received the final K1. I was wondering if I tracked the adjusted basis properly.

I checked the Final K-1 box, Partnership was discontinued during 2023 boxes.
I'm not sure if I need to also check the Partner sold or otherwise disposed of the entire interest in the partnership in 2023? Or if it matters.

On the"K1P Addl Info 2" Form, the checked boxes are 

Box 1 (disposed partnership interest in 2023)

Box 3 liquidated partnership interest

I'm trying to figure out how I need to fill out the required sales info. Using the K1 info:

Box 5 Sales Price: 2362 (not sure on this amount since it's in the basis for 2023 as well)

Box 7 Basis of partnership interest: 39,028

Box 8 Total gain(loss): -36,666

Box 9 Ordinary gain(loss): 0

Box 11 Long-term gain(loss): -36,666

Any help and guidance is greatly appreciated.

Thanks

year

2023

2022

2021

2020

2019

2018

2017

2016

k-1 form 1065
Part II
K
begin	218	85261	85094	85748	85440	87291
end		218	85261	85094	85748	85440	87291	39026
total	-218	-85043	167	-654	308	-1851	87291	39026
L
begin	2404	26491	31460	34840	43020	47738	25075	0
capital contrib							25000	25000
current year inc/dec	-42	101484	-479	-1432	-862	-1718	-244	75
withdrawal/distrib	-2362	-125571	-4490	-1948	-2562	-3000	-2093
end	0	2404	26491	31460	39596	43020	47738	25075
Part III
box 1 - business inc/loss		1238
box 2 - rental inc/loss	-42	-5983	-479	-1433	-1489	-4509	-1558	48
box 5 - interest inc		1	1	1	2	1	1
box 9c - unrecap 1250 gain
box 10 - sect 1231 gain/loss		106228
box 19 - distributions	2362	125571	4490	1948	2562	3000	2093
basis calc	39028	41650	150780	155581	159615	163356	172715	64074

[embedded_guy]

Added info, I have searched both on this community and other places in general for specific detailed guidance on adj basis. I've pieced

some info together, mainly from prior posts here. Trying to understand more details based on specific k1 statements for the adj basis tracking. Thanks

[Rick19744]

A couple of comments:

• You do need to indicate within TT that this is a complete disposition.  Unless you do this, TT will not "free up" any suspended losses; if applicable.  You may not have any suspended losses with the large gain in 2022.
• The K-1's have been required to track basis on "tax capital" which should be close to your "tax basis".  This is section L on the K-1.
• In looking at the detail, while the 2016 information is cut off, things appear to be tracking correctly on the K-1.
• Based on what I see, your tax basis is $2,362.  
• Your "selling price" of $2,362 (the distribution) less your tax basis provides a zero gain or loss.

[embedded_guy]

@Rick19744 thanks for your reply.

I thought the 2016 info was cut off as well, but if you hit the right arrow button, it should scroll to the right to show the full column. It did for me.

I have indicated on the TT schedule k1 form 1065, checking boxes Final K1, Partnership was discontinued in 2023. On the TT form "K1P Addl Info 2", I have box 1 and a.3 checked (liquidated partnership interest). I assume those are correct trying to understand the TT help about those boxes.

The multiple property sales were completed in 2022. Last tax year was liquidating any remaining funds (hence the $2362 distribution, box 19).

I'm not clear why you are saying the adj basis is 0. And not the calc I get 

I read that the section L Partner's Capital Account does not reflect the adjusted basis.

(Trying) to go by the IRS i1065sk1 worksheet to calc the adjusted basis, the bottom line shows the basis I have calculated since 2016 using the K1 statements I received. Since each k1 uses similar (or the same boxes), I have been starting with the prior year basis, then adjusting as

INCREASE 

• box K1 - liabilities (end_year - begin_year), if positive 
• box L - capital contributed during the year
• box 1 - business inc/loss
• box 2 - rental inc/loss (if positive), if negative, decrease basis ; typically this value is negative
• box 5 - interest
• box 10 - sect1231 gain/loss

DECREASE

• box K1 - liabilities (end_year - begin_year), if negative
• box 19 - distributions

I have left out any box 20 (AG,V,AJ,etc) amounts from the basis calc.

[Rick19744 · Accepted solution]

Your basis calc is way off:

• There are some small discrepancies between what you are reflecting from the K-1 and section L, but not being able to see the actual K-1 and all the boxes, I am going to go with section L.
• Your beginning basis reflects $64,064 which is nowhere near what the basis should be.  
  • Beginning basis is the capital contribution plus K-1 activity.
  • Based on the section L amounts, that reflects your basis.
  • Not sure how you are arriving at your figure, which exceeds section L by $38,999
  • So if you use section L, which appears to be correct, this is tracking your basis (technically tax capital).
  • Section L in my opinion appears to be correct and is where you should end up; no gain or loss upon termination.
• When using the K-1 figures you provided, I get tax basis of $2,364 which is only $2 off from section L.
• In conclusion, I believe section L is correct and you have no gain or loss upon disposition.
• If you think about it, you put in $50,000, had a gain of $106,228 (totals $156,228), had distributions of $139,664 leaving $16,564.  Adding up the annual K-1 activity amounts is $14,158 (losses which reduces basis).  So 16,564 - 14,158 equals $2,406 beginning tax basis equal to your section L ($2 rounding issue as noted previously)
• Bottom line, section L is correct, makes sense.  

[embedded_guy]

@Rick19744  thanks again for further explanation. Your calculation in item 5 does make sense. 

I'm not disagreeing with you about my calc and basis being way off. I am fine using the section L numbers.

To correct my calculation, the values I have for basis calc seem to be way different than the section L amounts. I'm arriving at those values trying to use the K1 values in the IRS adj basis worksheet.

It seems it's because I am including the K1 Partner's share of liabilities as noted in Section A - Increases, 3a - 3b (Partner's share of liabilities at the end of the year minus Partner's share of liabilities at the beginning of the year). If I remove the partner liabilities, my spreadsheet calcs match what you sent.

I assume box 10 sect 1231 values increase the basis?

Thanks

[Rick19744 · Accepted solution]

Ok.  Your response makes sense.

Liabilities do come into play for partnerships in some instances; meet tax allocation requirements, etc.

But for most purposes the liabilities only come into play if you would have used "debt" / liabilities for at-risk.

This is not the case for you.

So since you never had any "negative basis" which would require debt to qualify for the allocation, you can ignore the debt figures when determining your overall gain or loss.  This is the case for most investors.

As you can see, when reviewing the liability section in your facts, the liabilities impact net to zero; leaving you with just your tax basis amounts; which also then net to zero.

It appears that you now know what your tax basis is and can input the correct values to arrive at no gain or loss upon the sale of the investment.

And "yes" the Section 1231 gain increases basis.  It was the sale of the property at the entity level that generated this gain, and since the partnership doesn't pay the tax, you do.  As a result, this increases your tax basis.

This was also the reason you were able to receive the large distribution in the same year.

[embedded_guy]

@Rick19744   I appreciate your explanation and help adjusting my calculations, very helpful. It's definitely tough (for me at least, software development type) to understand when those worksheet fields should come into play for the basis calc and not.

It seems all the k1 statements for these types of real estate investments should end up having a 0 sale price and 0 basis (past capital contributions show the end at 0). Most of the sales and distributions happen the year prior to the final k1 statement.

Not sure if it matters if sale price is entered from box 19 or not. I have been filling out the box 19 in the k1 statement form, which adjusts the tax owed amount. Entering in both places seems to cause it to be taxed twice (possibly end up in two locations on my return).

Thanks for your help and tax enlightenment.

[Rick19744]

You are welcome.

I am not sure why adding the distributions in the K-1 input section causes duplication. 

However, in all my responses in this area, I always indicate to NOT input the distribution in the final K-1 section and only input it where TT asks for sales price.