Trying to understand K1

[mainhoon]

Guys, a followup.. So this was 2017 K1. I also have 2015 and 2016 K1 on the same thing. I didn't file them at all, somehow missed them.. So with the tracking cost basis thing, can 2017 return be filed solely based on 2017K1 or do I need to see the #s in 2015, 2016.. Is there any kind of carryover etc that happens?

[nexchap]

There is carryover (any passive losses in prior years carryover and can be used to offset any future gains).  There are also taxable events that could be included in those past K-1's (e.g. line 5 interest, or line 6 dividends).  I'd use TT to amend you prior year returns, and then make sure to enter 2015's suspended losses into the amended 2016 return, and 2016's suspended losses into your 2017 return.

[mainhoon]

So I saw the prior returns, there is no interest or divs. What I see are some amounts < 300 in Box 1 and some for AMT and some other info in Box 20.. But I see Part II, K section as 12-13k$ - something about liabilities.. What are these! My entire investment was 3k which evaporated when it went bankrupt! I guess I will go through the amends and see what material difference it makes!

[mainhoon]

So I saw the prior returns, there is no interest or divs. What I see are some amounts < 300 in Box 1 and some for AMT and some other info in Box 20.. But I see Part II, K section as 12-13k$ - something about liabilities.. What are these! My entire investment was 3k which evaporated when it went bankrupt! I guess I will go through the amends and see what material difference it makes!

[mainhoon]

nexchap or Rick, will appreciate your time on this.. I have been racking my brains on this K1 and I read your answers to other questions where Section L with Tax basis checked apparently might just suffice for these basis calcs.. So in my case now.. I got rid of BBEPQ - sold for $5 this year.. So Final K1 will come next year..

In the meantime, this is what I see

2015
Beg Cap AC 0
Cap Contri 3754 <-bought here
Cur Yr Inc/Dec -117
With/Dist 125
Ending Cap AC 3512

2016
Beg Cap AC 3512
Cap Contri 0
Cur Yr Inc/Dec -1539
With/Dist 0
Ending Cap AC 1973

2017
Beg Cap AC 1973
Cap Contri 0
Cur Yr Inc/Dec 342
With/Dist 0
Ending Cap AC 2315

So these are all in Sec L... It looks like I could just use these in my case? So is my current basis 2315? and when I get my final K1 next year, is the loss then just $5 - $2315?

For 2017, Box 1 says 365$ so I guess I will have to pay taxes on that.. Next year, when I get out, I get to take the losses? What I feel strange about is that in a normal stock transaction case if I lost all 3754$, my losses would be $5 - $3754.. However with this basis now reduced, it seems like I lose out, its just $5 - $2315 now?

I have to amend 2016 for other reasons, so I can add in these (missed K1 in 2016), not sure if I need to go all the way back till 2015 - the amounts are small as well..

Thanks!

[Rick19744]

Responses to some of your questions:
1) At the end of 2016 your tax basis is $2,315
2) Since this is a PTP your loss in 2015 would have carried over.  No tax impact.
3) Same for 2016 - loss carried over.  Just so you understand, with PTP's you can only offset losses with income from this specific PTP.
4) I assume the second 2016 figures represent 2017?  If that is the case, trying to reconcile the $342 and the $365 you indicate that is in box 1.  Must be something else to reduce that to the $342?
5) You actually received a distribution in 2015 even though there was a loss being passed out.  So really, this distribution would cover any tax impact in 2017.

[Rick19744]

You don't have any real significant losses being passed out so my guess is that you shouldn't have any significant cancellation of debt being allocated to you.

[mainhoon]

Thanks Rick. Section L has "Tax Basis" checked. Yes the last box was for 2017..

yes the last section in my question referred to 2017. And in that K1, Box 1 has 365 but the current year increase in Box L says 342. I don't know why.. But also when I look at 2016, that Box 1 has 53 but the inc/dec figure is -1539.. There does not seem to be a correspondence between Box 1 and the inc/dec figures..

So now when I have sold it this year, when the final K1 comes around next year.. what would happen? As of end of 2017, the basis is 2315.. There will be a new basis for 2018 in that K1? I sold all of it for $5, so just wanted to know what to expect.

The thing is I didn't do anything about these K1s (small figures, didnt fully understand what they were for at the time).. in 2015, or 2016. So although you say that no tax impact in 15 or 16, just loss carrover, do I need to go and amend them to make this happen? Or can I do it starting in 2017 and then 2018 will be the final K1. I may have to amend 2016 for other reasons and if so I can include K1 - looks like essentially there will be a loss carryover for 1539$ - there are myriad #s in the K1 but is that the bottomline or so?

[Rick19744]

Responses:
1) I wouldn't amend a return that has no tax impact due to PTP losses.  Some may, not me.  I just think it leads to confusion on the part of the IRS.
2) In 2017 I would include the carryover losses in TT $1,656.  This way the losses are in the system and the 2017 income amount will be offset by the losses.
3) In 2018 your K-1 needs to be reviewed carefully.  The preparer will most likely zero out your Section L.
4) So for 2018 you need to determine your basis before any distribution impact.  In TT you will mark that the K-1 is final.  For the sales price you will show what any actual distributions are; if any.  
5) Finally for 2018 TT will take any allowable losses since this is the final year.

[mainhoon]

Thanks Rick, will keep your suggestion on amend in mind.. But even if there is no tax impact in the prior return, but there was a loss carryover, is that something I can indicate in the next return without amending the prior return?

1) Where did you get $1656 for carryover losses in 2017? For 2016, I see $1539, curious how you got to $1656?

2) Yes for 2018, I would likely need an accountant to do this right.. But was trying to assess everything till now..

3) Finally, I also have the CA return to deal with.. What would the impact of the K1 on CA? I see a statement along with the K1 that has some amounts against each state..  Thanks a lot.

[Rick19744]

Responses:
1) When entering the K-1 for 2017 there should be a spot for carryover / suspended losses
2) The 1,539 for 2016 and the 117 from 2015 = 1.656
3) If you are a resident of CA, then TT should handle appropriately

[mainhoon]

Rick/Nexchap, so I gave these K1s to a tax preparer and what he is doing is this.. for 2017 he just took Box1 365 amount and then used it to offset ongoing rental losses. He took the amt amount in box 17 and put it in the AMT form. That’s it.

First, shouldn’t he be doing the carryover loss calculation as we did above for 1655$?

Then can one combine Box1 gain and Rental Loss? Both are passive, but I was reading that PTP numbers shouldn’t be combined with others.. that they need to be tracked separately..

Let me know.. Thanks

[nexchap]

Applying the 365 against income that isn't from that PTP is an error for a PTP.  Here's language directly off virtually all my K-1's (it could be on all of them -- I just haven't checked):  "The tax law limits the recognition of passive activity losses from a publicly traded limited partnership to the amount of passive activity income from the SAME partnership. Net passive activity income from a publicly traded partnership cannot be used to offset the net passive activity losses from
other sources including other publicly traded partnerships."  That rule applies until you've done a complete disposition, at which time you can recognize all losses.

And "yes", you want to track all the carryover losses.  That's what will keep you from overpaying your taxes for the PTP when you do the final disposition / accounting.

[Rick19744]

Agree with @nexchap.
More stringent passive activity income and loss restrictions apply to a PTP that is exempt from corporate tax. Each PTP is viewed on a stand-alone basis for applying the passive activity loss rules under IRC Sec. 469(k). Passive activity loss from a PTP, including carryforwards, can be offset only against income or gain from that specific PTP. Losses are not allowed to offset passive income from other sources. Likewise, passive income from a PTP can be offset only by passive losses from the same entity.
Based on your facts above, this PTP should net to zero for 2017 as the income should be offset by previous carryover losses.

[mainhoon]

I sold all this year for 0, so in 2018 taxes, I get to offset -1655 (carryover losses till 2016, as you calculated above) + 365 (2017 K1) = -1290$  against regular income? Since I end up with a loss eventually, I have to offset it against something and that can by anything at that point, right?