1065 Schedule M-2

Forum|Forum|3 years ago
January 29, 2023
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Using TT Business for our 2022 partnership return. In 2022 we sold an asset that had a full 179 deduction from a prior year. This asset was already in TT, and the sale was then entered in the step-by-step section. The sale then appeared in the schedule M-1 income reconciliation and flowed to the K-1 as expected. However, it seems there should also be a corresponding increase to the capital accounts in schedule M-2. After all, the business turned a fully depreciated asset with zero book value into cash. Am I missing something? Should I just enter the sale proceeds on M-2 line 4 manually?

TurboTax Business Windows

Anonymous_

Level 15

I don't think so, but I have a test return where the figures are actually all correct on the balance sheet in this scenario.

I will page @Rick19744 and believe he will provide input soon.

Mike9241

Level 15

is m-2 line 3the same as m-1 line 9? then the gain is included.

Rick19744

Level 13

The sale is recorded in TT. As mentioned:

The asset sale was entered through the Step-by-Step process. The asset was already there from 2021 with the prior 179 deduction. I handled the sale using the "Dispose of Business Property" section under the Income tab. Note the sale does show up in M-1 line 6a as "Disposition of Section 179 Assets" but is not accounted for in M-2.

Is there somewhere else in TT to record such a sale?

While you may have entered it in TT correctly, the Sch M-2 and Sch L (balance sheet) are based on your external books and records.

So I don't know if you maintain your books and records in QuickBooks, excel, etc. but the tax return and your books and records are generally not the same; which is why there is the Sch M-1 which reflects numerous lines to accommodate differences between book and tax.

As stated previously, Sch M-2 line 3 and Sch M-1 line 1 should always agree; both of these amounts represent book income not tax income.

I am not in a Windows environment to be able to walk through the software, but I do know what the end result should be, and as indicated previously, your facts indicate that your book income does not reflect the sale of the asset.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.