@chenxud If you step back and just look at the cash involved -- the amount you received when you sold plus any distributions, less what you spent to buy the shares -- you'll get to the total you made on this investment. Let's say that's $100k.
Despite all the gyrations that K-1s require -- the new vocabulary, the new forms, the numbers that can't be explained because they're the output of partnership accounting rules -- ultimately you'll find that you're taxed on that $100k gain. Which is as it should be. You made $100k. The IRS wants its slice.
But you have to recognize that you won't see $100k on your tax return. You'll actually see 3 different numbers, but together they add to $100k*: 1) the 'recapture' on form 4797, 2) the suspended losses on Sched E, and 3) the Cap Gain/Loss on Sched D. So if the 'recapture' gets bigger, the Cap Gain gets smaller. And vice versa.
I can't tell you whether the 'recapture' is a mistake, but suspect it's unlikely (if its wrong for you, its wrong for every K-1). But when you look at the 3 pieces together it'll all come back to your actual profit.
* They'll add to $100k, give or take minor stuff that may have been reported already (like interest, dividends, etc)
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**Note also, I'm not a Tax Preparer/CPA. Just a volunteer, seasoned, TurboTax user.
Use any advice accordingly!
