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BigJon
Returning Member

Form 4797 and PTP K-1 Box 10 losses

This question is in regard to Form 4797.  I own units of a publicly traded partnership and I have entered all boxes from the K-1 into TurboTax.  Box 10 (Sec 1231) shows a loss and this is a passive loss that must be reported on Form 4797 Part 1.  It is not ordinary income (loss), and Line 7 from 4797 adds the passive loss to the Carryover Worksheet as it should.  I have observed that on Form 4797, TurboTax takes the loss from Part 1 and populates Part 2.  I do not have a Sec 1231 gain to use the loss (and carried over losses) to net against the gain.  There is no gain, but since TurboTax has populated Part 2, the loss flows up to my 1040.  I do not believe that should happen because Sec 1231 losses are passive and cannot be deducted in the current year.  Is there a way to get TurboTax to record a loss in Form 4797 Part 1 without populating Part 2?  Or have I misunderstood the Sec 1231 rules?

4 Replies
nexchap
Level 7

Form 4797 and PTP K-1 Box 10 losses

Take a look at Section A of each of your K-1 Partner worksheets.  Section 1231 passive losses can be recognized IF there is other income being reported for that PTP. 

 

So if you sold a portion of a PTP and received Ordinary Gain, that would trigger some of the 1231 losses to be released.

 

Alternatively, something like Box 11 Income (e.g., one of my PTPs reported a capital gain that was not portfolio income) would also trigger some of this to be released.

 

If you look specifically at each worksheet, you should be able to see exactly which one(s) contributed the 1231 loss to 4707, and what offsetting income allowed the recognition.

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**Note also, I'm not a Tax Preparer/CPA. Just a volunteer. seasoned, TurboTax user. Use any advice accordingly!
BigJon
Returning Member

Form 4797 and PTP K-1 Box 10 losses

Nexchap, thanks for the reply.

 

This is a case where there is no income/gain anywhere on the K-1.  Box 11 is blank.

 

So my question is about how TurboTax has assumed that if Form 4797 Part 1 has an entry for a passive loss, then it automatically populates Part 2 with an ordinary loss.  If there is no gain, then a Sec 1231 passive loss is a carryover item for next year, and there should not be a current deduction flowing up to the 1040.

 

Is there a way to keep TurboTax from automatically filling in Form 4797 Part 2 when Part 1 is a passive loss?

nexchap
Level 7

Form 4797 and PTP K-1 Box 10 losses

My earlier response was aimed at understanding why the box 10, Sec 1231 loss was getting to Form 4797 in the first place.  My experience (with MLPs) is that the loss stays in suspension, never showing up on Form 4797 Part 1, until there's an offsetting gain from the same PTP.  The K-1 worksheet in TT shows the amount that's suspended to future years, and the amount that's being recognized.  Note that the gain could be on the K-1 itself, or it may be the Ordinary Income that can be reported on the Sales Schedule.

 

If you're dealing with a MLP, then you'll want to review the actual TT K-1 worksheet to see why the loss is being released.  Col (c) of that worksheet should sum to 0 unless you've made a complete disposition.

 

If this is some other form of partnership, and the instructions make it clear that the loss is supposed to be reported on 4797 regardless of offsetting income, then you may need to explain what the K-1 instructions are telling you.  That may help isolate how to get TT to treat it correctly.

**Say "Thanks" by clicking the thumb icon in a post
**Note also, I'm not a Tax Preparer/CPA. Just a volunteer. seasoned, TurboTax user. Use any advice accordingly!
BigJon
Returning Member

Form 4797 and PTP K-1 Box 10 losses

Got it.  Thank you

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