Final K-1 Question

[mellynlee]

I'm not sure if I should put this in a completely new post or not, but I have another question regarding these K-1 statements I have.

There is a page of Footnotes after the K-1, and one of them is titled Section 163(J) - Interest Expense Limitation

There is a lot of words and several numbers in this section.

They list the annual gross receipts for the 3 tax years preceding the current tax year - so there are amounts listed for 2018, 2019, and 2020.

It says to "Please multiply the gross receipts above by your ownership interest in the partnership for each year to determine your share of annual gross receipts from this business activity. The Section 163(J) rules are complex...."

Is there a form in TT that I need to fill out to do this?

[Mike9241]

here's your situation based on your example

you put in 1200

you reported net income over the years on your tax return of 500 

you never got any prior distributions  

so you should expect 1700 in cash when it was liquidated 

put another way.  if you put 1200 into a savings account to start

and over the years it earned 500 of interest income 

when you closed the account wouldn't you want 1700

that's your situation with the partnership. you should have gotten 1700 of cash 

but you only got cash of 1500 

200 is missing and it is this other asset that was distributed. 

the partnership was supposed to include info about this other asset with the k-1.

that leaves multiple possibilities of which this list is not an exclusive

1) the returns have been prepared incorrectly.

2) the property was sold for $y of which it only received $x in 2021 the rest will be received in the future. 

3) the returns have been prepared incorrectly.

4) the asset while having 200 of tax basis is worthless.

5) money was retained for possible unexpected bills, you'll get the balance when these are taken care of

I don't know how much $$$ this other asset represents so it's really up to you as to whether to pursue this matter or not 

[mellynlee]

OK, I see what you are saying. I will see if I can find out what this "other property" is supposed to be. Thank you for all your helpful explanations!

Did you see the post I made, right before your reply, regarding the Interest Expense Limitation for the K-1?

Are you able to help me with that one, or do you suggest I make a separate post?

Thank you!

[mellynlee]

Hello again!

I apologize for reopening this question, but I just want to clarify since I am filling out the TT form. According to what we have discussed about cost basis, etc., then on the TT form that asks for "Sale proceeds" and "Cost or other basis", those numbers would be *exactly* the same amount??

[Mike9241]

the interest expense limitation might exist if there is a number on 13k of part III of the k-1. if you have such a number run to a tax pro because Turbotax can not handle the situation 

Subject: Re: K-1 Footnote: Section 163(J) Interest Expense Limitation
I can't fully answer your 163(j) question because you have to go back to 2018. 163(j) went into effect in 2018 and reflects limitations on the deduction of excess business interest expense (EBIE). if there is any it would be on line 13K for 2018 through 2021. you should have received footnotes about the limitation for all years after 2017. if 13K is zero for all those years just ignore the whole subject.

excerpt from IRC 163(j)
(3)Exemption for certain small businesses
In the case of any taxpayer (translation the partner) which meets the gross receipts test of section 448(c) (translation, if your share of the average gross receipts of the partnership for the prior 3 years is less than $25,000,000) paragraph (1) (translation, the limitation on the deduction of business interest shall not apply) to such taxpayer for such taxable year. you are deemed a small business taxpayer

you are not subject to the limitation but you are required to file form 8990 which TurboTax does not do the form. if there is an amount on line 13K or if you reported EBIE in any year 2018-2020 if there is a carryover. you need to file 8990.

from 8990 instructions
Exclusions from filing. A taxpayer is not required to file Form 8990 if the taxpayer is a small business taxpayer and does not
have excess business interest expense from a partnership. so if there's an amount on 13k you are required to file even though you are not limited

why is this important
if subject to the limitation and reported/calculated properly from 2018-2020 your share of taxable income was increased or your share of tax loss was decreased by the EBIE - see prior year's forms 8990. however, your tax basis was reduced by the non-deductible EBIE. To the extent, there is unused EBIE in 2021 that increases your basis for determining gain or loss on disposition. Turbotax does none of these calculations.

[mellynlee]

Hi,

I'm so sorry, this message thread has gotten very confusing. I put a few different questions into this same post. Sorry.

You answered the above question for me already (in another post). There is nothing listed on line 13 of part III on my K-1, so you already told me I could ignore this whole issue.

Here is the question I still have. It relates to an earlier question (on this same post) of filling out the TT form under 'Investments', since I was told I needed to enter my K-1 capital gains in the Investment section of TT.  Here is a reply you made (if you look back several posts from this one):

-----------------------------

Description: Land Sale

Date Sold:  12/17/2021  (This is the date of the check we received with final payment)

Date Acquired:  2/16/2018 (This is the date our check was received and accepted, according to a letter)

Sale proceeds:  Do I put the amount of the check that we received on 12/17/2021?

Cost or other basis: Do I put the amount of the check we sent in on 2/16/2018? We did not send any additional $, nor did we receive any other $ except for this final check on 12/17/2021.

Holding period: Long Term (Box F)

yes to everything except cost. with a partnership, your tax basis (cost) changes with its activity which affects the partner's interest.

you start with what you paid in 2018 then from each year's k-1 you need to add all items of income and subtract all items of expense or loss if these are zero then it's what you paid in 2018. 

-----------------------------------

So if you look through a few more replies after this above post, it seems that the 'Sales Proceeds' would be the amount I received in my final check. However, the 'Cost or other basis' turns out to be the EXACT same number as my Sales Proceeds if you follow our conversation.

Is that correct? The two amounts should be exactly the same?

Thank you!

[Irish22]

To assure your cost basis is calculated correctly, go thru the steps of mentioned, looking at each years K-1, adding and subtracting each item. Often this total will equal sales price, but  not always. That is why often those who are unsure they understand how to make the cost basis adjustments for each year correctly, use the sales proceed number as an alternative. In your situation, they most likely are the same. 

[mellynlee]

Hi,

Actually, if I add all the income and capital gains received on my 2018-2021 K-1s, the amount is NOT equal to my final check. The difference between the 2 amounts is listed on my 2021 final K-1, line 19 (Distributions) with a Code C. (Which is 'Other Property').

This was a lengthy discussion between @Mike9241 and myself. Hoping he would be able to answer and confirm my question:

Only if I ADD the 'Other Property' Code C amount (line 19), to my cost basis, then my cost basis is equal to my final check amount.

I just want to verify that I should do that, so that YES, my cost basis = Sales Proceeds, and I put the same number on the TT form.

Thank you!

[mellynlee]

I apologize. I had an error in my last post.

Should I SUBTRACT (not add) the 'Other Property " Code C amount (Part III line 19) to my final cost basis?

In doing so, my Cost Basis will EQUAL the Sales Proceeds, and therefore I will have 0 capital gain/loss

[Mike9241]

i can't answer the question because you can't tell me what it is. 

[mellynlee]

I'm sorry. This post has gotten too long and too confusing.

To calculate my 'Cost Basis' for this final K-1 (non public limited partnership, land sale), I have done the following:

Cost Basis = Original Investment (from 2018) + all gains/losses in 2018-2021 K-1 schedules + 2021 net capital gain in 2021 K-1.

This amount is equal to the number listed on my final 2021 K-1 Part II, section L, 'Withdrawals & distributions'

This amount is not equal to the amount of my final (one and only) check that I received for the sale of this land in this limited partnership (which I put for 'Sales Proceeds')

I have an amount on my K-1 Part III line 19 (Distributions), with a code C ('Other Property').

If I subtract this amount from the above amount (in Withdrawals & distributions), it will equal my Sales Proceeds.

We had a discussion about this earlier in this post, and you had told me I should subtract this amount. So, I just want to clarify:

Do I subtract this amount, and therefore my Cost Basis will EQUAL my Sales Proceeds and I will have a 0 Capital Gain/Loss?

If I do not subtract this amount, I have a capital loss equal to the amount on line 19 Distributions (code C).

Thank you!

[Irish22_CPA]

Yes you subtract Other Property Distributions and  your Cost Basis will EQUAL my Sales Proceeds and you will have a zero Capital Gain/Loss. 

See IRS Determination of Basis of Partnership Interest:

Page 6: Capital Account Overview / Partner’s Outside Basis:

Conversely, a partnership’s distribution of cash or property to the partner decreases his capital account.

Page 7:The follow items decrease outside basis:
§ Distributions of money (including a decreased share of partnership liabilities or an assumption of the partner's individual liabilities by the partnership) and property distributed to the partner by the partnership. IRC 733 and IRC 732

[mellynlee]

I'm hoping someone can help me with solving my K-1 issues:

After entering this information, I went to TT 'Review' section, and it came up with the following errors:

One is under the Schedule K-1 Partnership Additional Info worksheet for this final K-1. It says I must enter an amount for Part II Line 7 Regular (Basis of partnership interest in the 'Regular' column). 

The other error is in the same worksheet, Part II Line 5 Regular (Sales price for 'Regular' column).

Do I enter my final check amount for BOTH entries? I am assuming that the "Basis of partnership interest" is the same as my "cost basis", which is equal to my "sales proceeds". (see above post).

I did NOT enter any information in the TurboTax K-1 section, when it asked for information about the K-1 Regular Gain/Loss and AMT Gain/Loss. I was told to ignore that section, and instead enter my gains/losses in the "Federal->Wages&Income-> Investment Income" section. Please confirm that this was the correct thing to do.

It would be great if @Irish22_CPA can reply, since they have responded to a lot of my earlier questions on this post. However, any help is appreciated! Read through this post for more information (but it is long and a bit confusing).

[IRISH78_CPA]

Hi. You will enter ZERO for both Basis and Sales Price in the K-1 section, as you've already entered that information in the Investment Income Section. If you were to add amounts in the K-1 boxes, the sale would be double reported on Form 8949.

[andyvu2002]

Hello, my partnership ended in 2023 when I fill out the tax return. I select the "complete disposition" option.

and enter the purchase date and sale date, the next section is entering sale information.

I enter sale price.

but I am confused on the partnership basis box.

on the sale sheet it gives me 2 options

1 -(purchase price/initial basic amount) @9379$ (this is what i paid to purchase these partners few years back)

 2- cost basic $7463

which one is the correct on to fill out on section partnership basis

lastly on box ordinary gain on the sale sheet it gives me 2 option.

1- gain subject to recapture as ordinary income

2- gain subject to recapture as ordinary income     

which one is use for option ordinary gain

thank you.