How to flow the ordinary business loss on the K-1 from an MLP to Form 8995 Line 6

Forum|Forum|3 years ago
December 21, 2022
14 replies
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I am using TT Personal 2021 to match the TT return the one my accountant did last year. My goal is to complete the 2022 return myself. My only open issue is I have stock of Magellan Midstream Partners, an MLP that provides a K-1 each year. His Tax Return Carryovers to 2022 show the -865 as a Passive Activity Loss, but I have difficulty getting this result in TT. On the K-1 form in TT 2021 I enter the annual loss of -865 onto the QBI Section D2 of the form. I enter the loss on Line E-3 but Line 4a shows a 0 calculated result. If I add the -865 to 4b then the -865 flows to Form 8995 Line 6. This calculates my Tax Return Carryovers to 2022 correctly but I don't feel it's the correct approach.

The 2021 return from my accountant (a CPA I have used for 15 years) has the -865 on form 8995. He did not use form 6198 and his summary chart shows the -865 as a 2021 Disallowed Loss and no current or Prior Year At-Risk or Passive Disallowed Losses.

I should mention I have checked the Box "All Investment in Partnership is At-Risk". Frankly, I reviewed many threads in the Forum and its still not clear if that's accurate or not. However, when I try checking the "Some Investment is NOT at Risk" it forces the use of Form 6198 and changes other calculations that overall appears a much worse approach.

Thanks in advance for your help,

Brett

Anonymous_

Level 15

@nexchap

Mike9241

Level 15

each MLP stands on its own. unless you dispose of it in a fully taxable transaction, none of the business losses are deductible (portfolio income/loss/expenses are taxable or deductible based on what they are) and since the loss is not deductible nothing flows to the 8995. you have a QBI loss carryover.

likely your tax basis is the ending amount in section L. unless it's negative there should be no problems. have you been tracking tax basis since acquisition? Turbotax doesn't do it and since this is treated as a partnership, your basis is what you paid +/- net income/loss for all years - distributions for all years which should be the same as section L

don't know which version you are using but you should have come across questions about loss and qbi carryovers when entering the k-1. Maybe someone else will provide guidance or contact support.

Mike9241

brettbrinkmanAuthor

Level 2

thank you for the feedback. I think you're on to something regarding the Basis. Currently, Section L is blank. Where do I enter the initial basis for the MLP? I don't have a spreadsheet yet, but this is only my 2nd year with the stock so I can easily create it.

Form 8995 on my original tax return does show the -865 loss on Line 6 as PTP income but then a zero on Line 8 as no qualified REIT or PTP income.

I am using 2021 TT Premium Desktop.

nexchap

Level 9

@brettbrinkman A couple questions / comments:

Do you have your own copy of the MMP K-1 for 2021? I ask, because you mention section L as being blank. It won't be blank on the K-1 itself, and you're going to want that for future years just as reference.
Are you following the TT interview, or trying to do this in Forms mode? I ask because you're referring to entering values directly into the QBI worksheets, and there's no need for this is you follow the interview.
TT won't track your basis. You'll need to do this yourself, using the K-1s. There won't be any tax issues associated with this, unless it goes below 0. At that point, 6198 comes into play and things get more complicated. Unless you want to develop real expertise in partnership taxes, best bet is to not let the basis get below 0.
If you simply follow the interview, the correct info will flow to the forms for filing. You'll also see a K-1 worksheet in your file that tracks the -865 carryover, and it'll show up in your 2022 return when you use TT to import 2021.
As long as you used your own money to buy the MLP (i.e., you didn't take out a loan to do it), AND your basis is above 0, then you'd keep checking the "Investment at Risk" box in the interview. That avoids TT creating form 6198. Once either of those is not true, you'd stop checking that box and 6198 is brought into the discussion.

Hope that helps!

**Say "Thanks" by clicking the thumb icon in a post. **Note also, I'm not a Tax Preparer/CPA. Just a volunteer, seasoned, TurboTax user. . Use any advice accordingly!