Be careful. TT does not directly handle many aspects of MLP sales well. I found the following:
MLP sales are a problem area for TT that they haven't addressed for years. There are a number of sale scenarios that must be dealt with:
1) Partial sales: In these cases, the capital gains/losses must be fully recognized. However, if you enter them during the K-1 interview they're treated as passive and suspended (for cap losses) or used to release past years suspended losses (for cap gains). Neither is correct.
2) Mixed short/long sales: The K-1 interview only allows one holding period. There's no way to split between long and short term gains/losses
3) Complete dispositions, all in one holding period: This is the only case where the K-1 interview works, but you still have to deal with the 1099-B that came in from the broker.
Because of all this, I handle all scenarios the same way:
- Use the K-1 interview for the 'ordinary gain' portion of the MLP sale, but not the capital gain/loss. Do this by: 1) enter 0 for sales proceeds, 2) enter the ordinary gain numbers provided on the K-1. Note that there will be two ordinary gain numbers, one for Regular and one for AMT, and 3) set your basis as the inverse of the ordinary gain (for example, if ordinary gain was 100 (regular) and 90 (AMT), set basis as -100 (regular) and -90 (AMT). Doing this puts the ordinary gain into all the right spots on your tax return, but sets the capital gain/loss as $0 for both Regular and AMT.
- Go the the 1099-B provided by your broker. There will be a cost they provide, which isn't reported to the IRS. This can be changed, so change it to whatever provides the correct cap gain/loss (you work out the cap gain/loss by using the K-1 worksheet).
This two step process handles all the scenarios above. Its unfortunate that TT doesn't provide an interview-based way to do this, because I'm sure many people don't notice the problems they're creating in their returns when they follow the existing interview. But until they do, this will work.
