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K-1 partnership disposition - liquidated in 2018, and loss handling
In 2018, the general partner of a partnership of which I am a limited partner liquidated the partnership, transferring the effectively worthless assets to a non-profit. My investment was $25,000. There were no distributions and thus my entire investment is worthless.
Not realizing there would be no further K-1s after 2018, I failed to indicate in my 2018 TurboTax filing that this was the last K-1. So now I am in the process of filing an amended 2018 return to correct this. My 2018 (final) K-1 Ending capital account basis is negative by a few thousand dollars, indicating a loss.
I am having trouble figuring out how to enter this in Turbotax 2018. What I have done thus far with the amended 2018 return is:
- Describe the Partnership: Checked the box for "This partnership ended in 2018."
- Describe Partnership Disposal: Selected "Complete disposition"
- Tell Us About Your Sale: Selected "Sold Partnership Interest" // not sure this is correct...?
- Enter Sales Dates: Purchase Date: was in 2013, Sales Date: 12/31/2018
- Enter Sale Information:
- Sale Price = 0.
- Selling Expense = 0.
- Partnership Basis = 25000.
- Ordinary Gain and 1250 Gain left blank
- Next screen is Review Investment Gain or Loss on Sale, and it indicates zero Short-term (and AMT) gain and -$25000 Regular (and AMT) long-term gain.
- Choose Type of Activity: Select Business - Box 1
- Did I materially participate?: Select No
- Is this an Oil or Gas Property?: No
- Entered Box 1 Info: populated wi the relatively small loss, negative value
- Check one box 14 with amount = $0 per the K-1.
- Describe the Partnership: Checked "I have passive activity losses carried over from last year" and "All of my investment in this activity is at risk."
- Report Carryovers - Regular Tax: Box 1 - Ordinary Income pre-populated with amount from 2017, a negative value -$29k and change.
- Any other Carryovers?: These entries are all blank. SHOULD I ENTER ANYTHING HERE?
- Report AMT Carryovers - same as Regular Tax and carryovers
- Done
My prior year (2017) return generated Form 8582 - Passive Activity Losses - of around $29k and change; 2017 Form 8582 Part I, Line 3c "Prior years' unallowed losses from Worksheet 3, column (c), due solely to this partnership.
Here's my problem/concern: I requested guidance from a professional accountant familiar with the LLC who replicated my situation with a pro-forma new client on his professional tax software and his result is:
The disposition of the LLC interest triggers the release of a $29k unallowed passive activity losses, subject to my $25,000 basis limitation. The expected result the software produces is a “Nonpassive loss allowed” in the amount of $25,000 on Schedule E, second page, Part II, in Box 28(i).
That, in turn, flows to Schedule 1 following immediately after and part of Form 1040, on Line 5.
And that, in turn, flows to the first page of Form 1040, Line 7a, Other Income from Schedule 1.
However, the result I am getting with my TurboTax 2018 is different:
Schedule E, Part II "Income or Loss from Partnerships and S Corporations" shows the following:
Line 27: Are you reporting any loss not allowed in a prior year due to the at-risk...": YES
Line 28: In addition to the LLC in line A, with the small loss (item 9 above) entered in column (i) Nonpassive Income and Loss, it introduces a new item with Name = "PYA" (same EIN as the LLC) with the $29k entry in column (g) Passive Income Income and Loss. I understand "PYA" to mean prior year adjustment, referring to prior year unallowed losses that are now deductible, per https://ttlc.intuit.com/community/business-taxes/discussion/what-does-pya-stand-for-on-sch-e/00/5905...
Lines 31, 32 show the totaled value of the columns (g) and (i), which amounts to a $29k+ value.
My turbotax results in $29k+ flowing to schedule 1. This is different than the professional accountant's results which resulted in a $25,000 basis limited value flowing to schedule 1. How do I deal with this in Turbotax to result in a $25,000 loss flowing to schedule 1 ? It suspect the professional accounts results are correct, which means my Turbotax entries are incorrect. Can someone point me in the right direction?
Thanks!