Fund's K1 form to me shows income, but i have unrealized loss in brokerage account.

[taxes1231]

I own shares in USO, which is an ETF. I purchased these shares in 2015, and have not traded at all in 2016. I received a K-1 Form 1065 from the fund saying that I have $17 in income for 2016. However, in my brokerage account, I can see $50 of unrealized losses.  If I input just the K-1 into turbotax federal, it computes that I owe $5k in taxes - is there any way to offset this against the significantly larger losses that I am sitting on?

[MinhT · Accepted solution]

USO is an Exchange Traded Fund (ETF) which is organized as a partnership. When you own shares in USO, you are considered as a partner and receive a form K-1 representing your distributive share of the income of the partnership.

You have to enter this form K-1 on your tax return. The income is taxable.

To avoid being taxed twice on this income, you add this income to the cost basis of your USO and have to adjust the cost basis when you sell these shares.

[taxes1231]

Hello, and thank you - this was very helpful. I want to make sure I am fully understanding, so I will use an example.

Purchase price: $10
Volume: 100 shares
Price at 12/31/2016: $4
K-1 income: $20
Sale price at 6/6/2017: $7


For 2016:
I will file the K-1 as part of my federal/state tax filing, and it will reflect income of $20.

For 2017, in this example:
I will sell the stock.
I purchased 100 shares at $10, or a total of $1000
I sell 100 shares at $7, or a total of $700
My loss is = Purchase Amount + Income - Sale Amount = $1000 + $20 - $700 = ($320) LOSS

Which means that net, net, my loss ends up being exactly Purchase Price - Sale Price, and in fact, in reality, the Income from the K-1 had no bearing.


My follow up questions:
a. Did I interpret your guidance correctly?
b. Is there any IRS document / tax law that you can point me towards so I can save it as 'proof' if the tax man com'eth
c. Is there anything that I can do TODAY (ie, for the 2016 tax filing) to off-set this K-1 Income?

Thank you!

[MinhT]

I interpreted right. Globally, the income of $20 you report in 2016 will lead to less capital gain (or more capital loss) when you sell.
There is no specific IRS which addresses this situation. The IRS just says that as a partner you have to report your K-1.
The income is added to your cost basis (just as you add dividends received to the cost basis of a mutual funds).

[Sats]

Hi,

I invested in EMES stock which went into bankruptacy in 2019 and they nullified all my stocks (investments) to ZERO in Dec 2019 automatically. Now I have received K1 showing Income on it which is again taxable. 

Did not understand when i have lost all my money on this stock which also got nullified to zero why my K1 is showing income and why shoudl i pay tax for it. Is there any way to offset this  please advice

[MGuercini]

Did you ever get an answer to your question? I am surprised that your question was ignored by Turbotax experts. Thanks.

[Tutumetax18]

The sell of USO shares transaction is  reported to IRS, if you adjust the cost of the shares, it will not match the price reported to IRS from your brokerage firm. Will this cause IRS audit?

Thanks.

[MarilynG]

It is not unusual for a broker to report an incorrect Cost Basis on Form 1099-B, as they may not know the correct Cost Basis.

If you adjust the Cost Basis on your 1099-B entry, this is not a flag for an audit.  Save documentation for how you determined the correct Cost Basis.

Here's How to Enter 1099-B.

@Tutumetax18