I sold my partnership in my stock investment account. 1099 B listed capital gain and K1 also listed as business gain. How to avoid double tax?

[Mike9241]

They are entirely different. The k-1 income or loss affects the capital gain/loss on the 1099-B. Most likely, you sold a Publicly traded partnership or Master limited partnership. Included in that k-1 package there should have been a unit sales worksheet that's required to properly report the capital gain/loss on disposition. The 1099-B DOES NOT reflect your correct tax basis.

if all units were disposed of here's guidance on reporting

Please follow these instructions. Incorrect entries can result in entering the sale twice or incorrectly. Also, see the sales schedule that was included with the K-1

Enter the K-1 info
Check the PTP box (should be checked on the K-1)
Check final K-1 (s/b marked on actual k-1) if you held no units at year end
Check sold or otherwise disposed of entire interest

On the k-1 disposition section for sales price, use the ordinary income. It's line 20AB on the K-1.  There would also be an ordinary income column on the sales schedule with the same amount. if there is none then the sales price is zero. The numbers I’m using represent the line numbers in forms mode (desktop only)
5. Sales Price = line 20AB (1065 k1)
6. Selling expenses = 0
7. Basis = 0
8. Gain is computed and should be same as the sales price.
9. Ordinary gain = enter same as sales price
This amount flows to form 4797 line 10 and is taxed as ordinary income. This step is necessary so any suspended passive losses are now allowed.
10,11,12 should be blank

Now for the 8949.
The broker’s form is probably coded as B or E – sales proceeds but not cost basis reported to the IRS. This is because the broker does not track the tax basis. It used what you originally paid, which is incorrect.

The correct tax basis is:
What you originally paid, should be the same as what is on 1099-B as cost (unless there was a merger or something) . Then, there is a column on the sales schedule that says cumulative adjustment to basis. If it’s positive, add it to the original cost. If it’s negative, subtract the amount. Finally, add the amount of ordinary income reported above, if any. The result is your corrected cost basis for form 8949.

Some other things. Look at lines 20AB. That number should be added to the ordinary income above for reporting the 199A (qualified business income from the PTP). You don’t have to enter this but then you lose out on a tax deduction = 20% of this amount.

state laws vary

[JamesG1]

Report the sale in only one place.  Retain all paperwork should a tax authority have a question at a later time.

The record of the partnership K-1 sale may occur through the K-1 screens or through the IRS form 1099-B entry screens.  You would not report both.

Be aware that if:

• At the screen Describe the Partnership, you report Disposed of a portion of my interest.... and
• At the screen Tell Us About Your Sale you reported Sold Partnership Interest,

the sale is being reported.

See also this TurboTax Help.

@whmoa

[Edited 04/09/25 | 9:30 pm PST]

[whmao]

Thank you very much for your detailed answer.

I sold PTP, Energy Transfer LP, after holding for more than 3 years.

Merrill's1099-B lists it under "Cost basis not reported to IRS - Form 8949, (X)",

1d. proceeds: 16,200

1e. cost basis: 5,185 

My TurboTax premier downloaded it from Merrill, lists capital gain: 11,015

K1 has

20AB: 5,922

Sales worksheet lists:

4 . Average purchase price/initial basis amount: 5,185

5. Cumulative adjustments  to basis: -3,507

6. Average cost basis: 1,678

7. Gain Subject to recapture as ordinary income: 6,141

8. AMT Gain/lost adjustment: -58

10. Cumulative adjustments to basis: -1,505

11. Gain subject to recapture as ordinary income: 4,139

following your instruction, 

K1 disposition section:

sales price: 20AB: 5,922

gain: 5,922

ordinary gain: 5,922

In Business Items, Sale of Business Property: 5,162

Then go back to 1099-B,

The initial basis (5,185) + cumulative adjustments (-3,507) = average cost basis (1,678)

Add the ordinary income (5,922 (?))  = 7,600

So the 1099-B cost is 7,600

This results a capital gain of 8,600

So in total, I have a capital gain of 8,600 + business gain of 5,162 = 13,762 taxable.

The actual gain I received is only 11,015. 

Is there anything wrong? 

The extra gain of 3,507 comes from cumulative adjustments to Basis in K1 sales worksheet. Do you know what it is?

I am using desktop TurboTax premier WindPerRelease 024.000.0350

Do not see the line numbers as you referred to.

Thank you very much!

[PatriciaV]

Cumulative adjustments to basis include allocated income, losses, and other historical changes to your initial investment as recorded by the PTP.

The line numbers used by Mike9241 come from the supplemental information provided by Energy Transfer LP with Schedule K-1.

If you didn't take the cumulative adjustments into account when you calculated your basis, you would expect a different gain/loss than is reported.

Follow these instructions to accurately report this sale.