Partial sale of units in a PTP

[ewoldde]

I have two PTP's that I have held for years, buying more units when my basis (in the Capital Account of the K-1) nears zero.

The PTP distributions are treated on a "first-in/first-out" basis so the original investment must be returned before any capital appreciation, which would be a dividend--that is what makes these PTP's tax deferral shelters.

My question is, if I sell a specific lot, can I treat it as I would a normal stock sale?  Does IRS have any special rules requiring some special first-in way of doing it?

I know that I would have to go back and pro-rate each of the quarterly payouts to the lots held at the time, being careful of EX-DIV dates, etc..  (Quicken refuses to do this for dividends and returns-of-capital even though I told them how a programmer could do it with the data they already keep.)

I am not sure whether I will go ahead with this, but I am thinking about how messy if might be--selling the whole position is already messy enough.

[Mike9241 · Accepted solution]

when you sell a partial or entire interest, the PTP will provide you with supplemental sales schedule which should provide the info needed to record the sale (except for a possible wash sale) and any ordinary income recapture IRC 751. (some PTPs don't have any others have a lot) The PTP probably uses FIFO. Can you use something else? well you have to tell the broker what specific lots you are selling and then the broker would have to send that info to the partnership. will the partnership reporting honor this? Don't know. Recording a partial sale could be messy and I have never dealt with such a situation. The other thing is you may have to watch for is a wash sale. The broker may report a wash sale because it only knows what you paid originally not what your true tax basis is so even if no wash sale their reporting will need adjustment. 

by the way typically older lots have more ordinary income recapture than newer lots - this IRC 751 recapture is the depreciation taken by the PTP as allocated to the various units sold, if any.  There is no way to know this amount until you get the k-1 package.

[ewoldde]

Thanks for the info.   It clears things up a bit for a messy situation.