Business & farm

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.

4) Simply following the advice that pops up on the TT forms to enter 0 for sales and 0 for cost basis goes haywire as soon as you try to enter the Ordinary Gains that always arrive with a MLP K-1.

Because of all this, I handle all scenarios the same way:

1. 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.
   
2. 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).

As to the specifics of your calculation, in the case where you had:

(3) Sales proceeds: 500
(4) Purchase amount: 10,000
(5) Cumulative Adjustments to basis: -2500
(7) Ordinary Gain: 600
(9) Alternative Minimum Tax Basis Adjustment: -162 

Your basis for this particular sale is $7500 (10,000 - 2,500).  Your sale proceeds are $500.  So your total loss on the sale is $7000 (500-7500).  However, in any MLP sale a portion of the transaction is treated as ordinary income (taxed just like wages), and a portion is treated as cap gains/losses.  So the $7000 loss is going to be broken into two parts:  ordinary gain (the piece taxed like wages) and capital gain/loss (all the rest of it).

In step 1, you'd use $600 for regular ordinary gain, and $448 for AMT ordinary gain (600-162).  Per my instructions above, you'd enter 0 for sales and -600/-448 for cost basis.  Since you have multiple lots, you'd simply use the total ordinary gain rather than the per lot info.

In this case, for step 2, you have a cap loss of $7600.  This is calculated so that the total of your ordinary gain + your cap gain/loss equals the 7000 loss from above ( 600 + -7600 = -7000).  Since your 1099-B will show the $500 sales revenue, you'd enter $8,100 as the cost basis.  This gives you the $7600 loss (500-8100).

It all seems complicated, but when you step back and look at what makes it onto the tax return, you'll see the $600 showing up on form 4797, and from there to your 1040 line 14.  You'll see the -$7600 on your Sched D, and from there to your 1040 line 13.  And, assuming you had suspended losses from prior years, you'll see them pop up on Sched E, and then on 1040 line 17.