K1 and Disolution of limited partnership

[AJ80]

About 20 years ago I was gifted shares in a limited partnership and in 2021 that limited partnership ended (was dissolved).

In the final K1...

* I have values filled out in section II.L (Partner’s Capital Account Analysis). Beginning is a small value, and ending is 0.

* My final distribution is in section III, item 19A

* I have values in part III in these fields: 1, 9c, 10, 17a, 17b, 18c, 19a, 20ag, 20n, 20z

My general question is how to enter this K1 into TurboTax including the ending of the limited partnership. My guess (with a lot of questions!) is…

• In “Describe the Partnership” I selected “This partnership ended in 2021”
• In “Describe Partnership Disposal” I selected “Complete disposition.” – Was this correct?
• In “Tell Us about your sale?” I wasn’t sure so selected “Sold Partnership Interest” – Is that correct?
• In “Enter Sale Information”…
• I put “Sale Price” as my last distribution from 19A -- ???
• Selling expense – 0
• Partnership basis – 0 – should I have put the small amount from the beginning of the year in section K1 II.L?
• Ordinary gain – I put the value from the K1 part III, item 1 – is that correct?
• 1250 gain – I put the value from the K1 part III, item 9c – is that correct? Should it be the value from item 10 instead?

[Anonymous_]

I will page @Rick19744 but you might want to read through the thread at the link below.

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/how-i-report-the-sale...

[Rick19744]

Actually you have done a pretty good job in your attempt, but I will add some commentary:

• While this may not be what you want to hear, but when you were gifted the interest 20 years ago, you should have been provided with the tax basis of that interest at the time of gift.
  • Hopefully you have this, as if you don't, you really don't have complete information to determine your overall gain or loss.
• The information on the K-1 Part II line L is tax capital.  This is generally, most of the time, not the same as your outside tax basis.  This reporting was just recently mandated and people think this is their basis in the investment and it's not.  This represents each partners tax basis of the assets in the partnership.
• Your selling price noted is correct; your liquidating distribution
• If your K-1 does not have any footnote regarding ordinary gain, leave this blank.  Part III line 1 has already been reported and should adjust your tax basis; which we haven't determined if you have this schedule.
• Section 1250 gain is correct - line 9c
• I think your other responses to the TT questions are good
• The real key here is the question of  your partnership basis.  Let me know if you either have this or don't.  If you don't, how many past year K-1's do you have?
  • Or is this just not a significant number that it's not worth the effort of trying to determine a more accurate partnership tax basis?

[AJ80]

Hi Rick19744,

Thanks so much for the assistance!

I was not provided with the tax basis 20 years ago. I do have every tax return and K1 since then. Will that help?

[ZoltanB45]

Just enter the amount of equity you still had in the business at the time of selling your share. That includes your share of the profits of the final year which were not distributed. 

Look at the beginning capital account of the final return, add any contributions, deduct the distributions and add your share of the profits during the year (or deduct your share of the losses). The only reason I laid it out like this is, because you might have a zero ending capital account balance on your K1. Normally you would just take the ending capital. This is not a valuation by any means, but it will be good enough in recording the gain or loss on the sale.

[Rick19744]

I disagree with @ZoltanB45 .

Most balance sheets maintained by a partnership are on a GAAP or book basis.

While the reporting of the capital account changed last year, to be a tax capital account, this is not the same as your outside tax basis.

If you have the K-1 from every year (kudos to you for having this), then I suggest the following:

• Hopefully you understand using excel good enough to provide assistance in determining your tax basis
• Keep in mind, this most likely is not completely accurate, since you were not provided what your gifted tax basis was at that time; but close enough.  The best information you have available.
• Find your initial K-1.  Hopefully there is a figure on the increase/decrease line (what is now Line L on the K-1) that reflects transferred basis.  This will be your starting point.  I know what I just said, but that is all you have.
• Next, for each year K-1, including your initial, adjust your tax basis for the applicable lines in Part III
• See page 3 of the K-1 instructions for some help; link below
• https://www.irs.gov/pub/irs-pdf/i1065sk1.pdf
• Once you have completed the worksheet for every year, adjust for your final K-1 for all items EXCEPT for any distributions on the final K-1.
• When entering the information for the sale (liquidation); your final distribution will be the sales price, your tax basis which you just calculated will be your cost.
• TT will then compute your overall gain or loss

[AJ80]

Thanks @Rick19744 ! Sorry for the slow reply. (I was traveling.)

My thought after mulling this over a bit is that since I was gifted the share of the limited partnership my own cost basis is zero (which of course isn't good tax-wise). Think that's correct?

[Rick19744]

@AJ80 if you don't have any support for a beginning "gifted" basis, then unfortunately that would be your starting point.

However, you most likely don't have zero basis after factoring in all the K-1activity since the gift.

If this was a fairly simple partnership, then it shouldn't take too long to put the appropriate K-1 amounts from each year into excel to arrive at your final cost basis.

[AJ80]

Hi @Rick19744 - I'm pretty good with Excel so I (naively!) thought this would be straightforward.

I've read through the worksheet instructions a few times on page 3 of https://www.irs.gov/pub/irs-pdf/i1065sk1.pdf .

Alas they don't tell you which K1 fields to use to calculate each row in the worksheet. So, I don't think a non-accountant like me can realistically interpret the instructions. It's too bad because I am betting that these entries could be derived from the K1 given the formulas. Maybe this would be a good TurboTax enhancement for the future-- to create/maintain the cost basis worksheet for the investment in a partnership.

On any account I want to say thank you for your help nonetheless!

[Rick19744]

@AJ80 the world of tax is complicated regardless of the size of an entity structure.

Obviously I don't know what fields in general are populated on your K-1's, but in general:

• You will start with initial contribution which we determined will be zero for you based on previous comments.
• Then look at each applicable box and determine how that impacts your tax return.
  • I recognize this is sometimes easier said than done for those that use TT and everything just works as it should; or that is the goal
  • But in general, fields with income, increase your basis
  • Same for expense / deductions, those will decrease your basis
  • Any other contributions that occurred during the past will increase your basis
  • Any distributions over the years will decrease your basis
• So using Excel, have the years at the top, K-1 fields in Part III down the side
  • box 1 income / loss
  • box 2 real estate income / loss
  • box 5 interest income
  • box 18 (current year K-1) tax-exempt income / expenses impact your tax basis as well
  • other typical boxes 6,8,9,10,11,12,13,19
  • remember don't decrease your basis by the distributions on your final K-1.  You will use this for the sales price as noted previously.
• Take a shot at it and see where you come up.  Getting some professional help this time of year will most likely be next to impossible, meaning a possible extension if you aren't comfortable with where your tax basis ends up.

[AJ80]

Thanks @Rick19744 

I may take another run at the basis in a while.

I have a question on the numbers I’ve entered so far.

From the K1

• 1 = -5137
• 9c = 19,076
• 10 = 41,576
• 19A = 37, 507
• 20AG = 44, 571

And for now I’ve used section L “beginning capital account” as the cost basis = 1,072

Here is what TT created as my Schedule D.

Should I be taxed on both of these capital gains??

• The investment gain = 37,507 – 1,072 = 36,435
• From K1 line 10 "new section 1231" = 41,576

Is TT doing this correctly? It seems like its duplicating the capital gains.

[Rick19744]

The problem you have here, is that you aren't adjusting your tax basis (cost in column e) for the current year K-1 impact.

If you use the beginning of the year figure, which we don't know is accurate, but assume it is, then:

• you need to subtract the 5,137 loss (box 1)
• add the section 1231 gain of $41,576 (box 10)
• this gives you a tax basis (cost basis column e) of $37,511
• Using this figure gives you a small loss of $4

You essentially were getting double taxed as you were not adjusting your tax basis for the current year K-1 line items.

[AJ80]

Thank you @Rick19744 !

[Rick19744]

Welcome

[plawlor78]

Hi @Rick19744,

Your answers are very clear and helped me with my federal calculations for my final K-1 (real estate). I'm now doing the state returns since I have income (Montana and Oregon -- I am a resident of California). I realize that I most likely have not been doing my state returns correctly. I have not been filing state taxes for Montana and Oregon, primarily because I have had losses and thought that I could just carry them forward until I eventually had gains. I was under the impression that I could accumulate losses similar to federal. From reading other threads and some of the Oregon non-resident filing rules, it seems that I was supposed to file taxes even for years when I had losses so that I could use the carry forward losses. Is that true? If it is, what are my options? These real estate K-1s generally have big losses in the early years that I definitely want to use.