Annual how do I enter sale of MLP question

To enter a Sale of MLP in TurboTax online, you will follow these steps:

1. Click Wage and Income
2. Scroll down to S-corps, Partnerships, and Trusts, Click Show More
3. Click Start next to Schedule K-1
4. Click Start next to Partnership/LLC (Form 1065)
5. Click Add
6. Enter the Partnership Name and Address
7. Indicate if the partner is a retirement plan
8. Choose Limited Partner or General Partner
9. Choose a Domestic Partner or Foreign Partner
10. Enter the percentage of your share
11. Enter your liability share
12. Enter the Capital Account Information
13. Choose Disposed of a portion of my interest in the partnership during 2022
14. Choose Sold Partnership Interest
15. Enter Sale Information
16. Finish the remaining interview questions

@spoede1026 

@BrittanyS 

I don't believe that your answer is correct.

First, there is no "S-corps, Partnerships, and Trusts" under "Wages & Income" in my 2022 version of TT. The place that K-1 info is entered is instead in the section entitled "Business Items: Business income and expenses, K-1s, farm income".

Second, and more importantly, you haven't addressed the issue of duplicate entries caused by downloading the 1099-B info from my broker and also entering the K-1 info.  Doing so will show two sales in form 8949, not just one. This problem has existed in TT for years (as a search o the community will show), but previous years' workarounds are apparently no longer correct for the 2022 version of TT.

To clarify, in your K-1, what boxes have recorded information in them? 

@spoede1026 

On the K-1 I'm working on, boxes 1, 13K, 17A, 19A, & 20N, V, & Z. In addition, boxes 5, 6a, 6b, 10, 13A, 17B, 18C have the numeral zero printed in them.

The issue isn't tied to those boxes, I suspect. Rather, it is tied to the sale of the MLP which ends up being recorded twice, once in the 1099-B info and once in the K-1 info. There are numerous historical posts on this forum dealing with the issue, but they apparently are no longer relevant since TT has since changed. (As one small and possibly irrelevant example, most of the previous posts state to indicate that the sale is a final sale of all of one's interest. That/those options are no longer available in TT.)

The former "best" answer has been removed by the TT hosts of our community apparently because of the changes to TT. I'll try to post a link to the removed answer:

https://ttlc.intuit.com/community/discussions/discussion/how-i-report-the-sale-of-mlp-shares-in-turbo-tax-i-sold-all-shares/00/776624/message-id/25565

I would report the one or the other to avoid duplicate income provided that the 1099B and K-1 information is the same, otherwise you will be reporting duplicate income. If the IRS questions you why you did not submit either the K-1 or 1099B, you can explain that both the K-1 and 1099B are reported for the same taxable event and if you reported both of these, it results in duplicate income.

I would suggest omitting the 1099B and report the k-1 since there is more relevant information contained on that form. Meanwhile, keep a copy of this post as this is a record of my advice to you to submit to the IRS in case if you are questioned on this. Make sure before you do this to double check if the K-1 information transfers to Schedule D thus reported properly as a sale of an interest.

Let us know if this works.

@spoede1026 

@DaveF1006 

Your advice is quite a bit different than the gist of that of previous years but possibly the correct advice. If memory serves me right, the advice was something to the effect of using the adjusted basis from the K-1 to modify the basis reported on Form 8949 and then enter only the K-1 Ordinary Income in the K-1 portion of TT.

Also, wouldn't omitting the sale from the 1099-B possibly raise red flags with the IRS since the MLP sale would not be reported in the correct place, i.e., my return would not match up precisely with the 1099-B submitted to the IRS? That's happened to me in the past (on a matter different than the sale of a MLP), from which I learned that it's smart to make things as easy for the IRS as possible.

Confusing the IRS is never a good idea.  

But in this case the information from the K-1 should match the information on the 1099-B.  As @DaveF1006 says above, when you enter the information from the K-1 it should transfer to the schedule D.  If you entered the 1099-B it would go on the schedule D, anyway.  As long as the sale shows up there you should be solid.

@spoede1026 

first, you need the supplemental schedule that accompanies the k-1 when units are sold. 

Enter the k-1 info
Check the PTP box
Check sold  a portion of interest in the partnership

Use QuickZoom to get to the disposition section (forms mode)

On the k-1 disposition section after entering the purchase and sales info use the ordinary income as the sales price. this comes from the supplemental schedule column 7 “Gain subject to recapture as ordinary income”. 

(this amount is now also reported directly on the k-1 line 20AB)
Cost is zero
Ordinary income is the sales price.
This info flows to form 4797 line 10 and is taxed as ordinary income.

Now for the 8949.- capital asset sale worksheet 
The broker’s form is probably coded as B or E – sales proceeds but not cost basis reported to the IRS. This is because the broker does not track the tax basis. It used what you paid originally which is not correct.

The correct tax basis is the sum of columns 6 and 7 from the supplemental schedule 

Some other things. Look at lines 20Z1. That COLUMN 7 AMOUNT/20AB should be added to the ordinary income  (or netted if 20Z! is negative) for reporting the 199A (qualified business income from the PTP). You don’t have to enter this but then you lose out on a tax deduction = 20% of this amount.

@RobertB4444 If one does as you suggest, the sales data ends up on form 8949 twice.

@Mike9241 This looks like it may be the correct answer. Let me try it and see what happens.

Thanks!

@Mike9241 After doing what you recommended, you are spot on! Thanks Mike.

I'm not sure that I understand this, however. " Look at lines 20Z1. That COLUMN 7 AMOUNT/20AB should be added to the ordinary income  (or netted if 20Z! is negative) for reporting the 199A (qualified business income from the PTP). You don’t have to enter this but then you lose out on a tax deduction = 20% of this amount."

I'm not sure what you're suggesting I should add and where I should add it. Also, the Column 7/20AB amount is the Ordinary Income so why would I add it back to itself? Help me out of my confusion, please! 🙂 

@spoede1026 First, I'm trying to find out why the original post that addressed all this is gone.  I briefly thought that TT had fixed the issue, but they haven't.

What Mike described works as long as you don't have to deal with AMT.  If you do you have two different Ord Gain values (one 'Regular', one 'AMT').  You deal with that by entering $0 for sales, and for basis you use the inverse of the Ord Gain (e.g., -100 if Ord Gain is 100).  The net result you're shooting for is to have the K-1 calc $0 for short term and long term gains.

On the QBI portion you asked Mike about, TT is convoluted.  The form asks for 'Ordinary business income", and then further down it asks "Total ordinary Form 4797 gain included above.  People can accidentally just put the 20Z value on that first line, but it needs to be 20Z + 20AB so that you can then report 20AB again on that later line.

@nexchap I'm very slow today. I don't understand this statement:

"On the QBI portion you asked Mike about, TT is convoluted.  The form asks for 'Ordinary business income", and then further down it asks "Total ordinary Form 4797 gain included above.  People can accidentally just put the 20Z value on that first line, but it needs to be 20Z + 20AB so that you can then report 20AB again on that later line."

I have multiple questions:

• What do you mean by the "QBI" portion?
• When you say the forms "asks for 'Ordinary business income'", do you mean Box 1 info or something else?
• I cannot find anything within the TT Q&A that asks "Total ordinary Form 4797 included above". Where do you see that?

TIA in advance for your patience and further help.

@spoede1026 There's a section of the tax code that deals with "Qualified Business Income" or QBI.  You get a lower tax rate on this type of income, and MLPs generate some.  So when you enter line 20Z into TT it triggers the interview to ask you about QBI, which happens on a screen like "We need some information about your 199A income".  On that screen, there's a box you check for "____ has business income" and a bunch of boxes appear".  The first of those boxes is for "Ordinary Business income" and the 5th is for "Ordinary For 4797 gain included above".  This is what people mess up:

- Box 1 on your K1, or line 20Z itself, is one source of Ordinary business income which goes into the first box.

- But your Ordinary Gain on the sale (20AB) also goes in that first box, and then is identified again in the 5th box.

Thanks very much, @nexchap . Y'all's instructions finally make sense. I sure wish TT would clean this up to make it more straightforward. MLPs are, after all, fairly commonly owned.

If you have an "in" with TT management, another issue that they need to clean up is Amended Returns. That's a disaster. Last year I had to prepare and file one, and TT pulled wildly incorrect info from my original return. Numerous posters over several years have complained about the same problem but TT just seems to ignore the issue.

But, nevertheless, thanks for your help.

I am struggling with this as well. 

I am using the desktop version of TT on a Mac. The sale is a complete disposition/Final K-1.

After following Mike9241 's very clear instructions on the entry of K-1 information in the disposition section of the K-1 form ("K1P Addl info"  worksheet form in TT) the info doesn't "flow to form 4797 line 10 and is taxed as ordinary income".  Instead it flows to a new 8949 as a Box F sale (Long term transaction not reported on a 1099B). This ends up being a second entry of the sale, only this time with amount of recaptured gain from Column 7 of the K-1 Sales Schedule being Long-term gain.

I have filed an extension so I have time to sort this out, but it's driving me crazy. Help please!

Thanks,

Stuart

to Spoede1026 @spoede1026 

I have been struggling with the reporting of a complete sale of an MLP.  I'm using the desktop TT on a Mac. When I followed Mike9241's instructions for the disposition section of the K-1 form I ended up with the info going as an additional long-term sale on a 8949.

I saw a reply from you on this thread that you and others have had this same problem. Then I saw your response to  "@Mike9241 After doing what you recommended, you are spot on! Thanks Mike."  I couldn't figure out what his additional recommendation was. Have you resolved your issues with MLP sale reporting?

Stumas11:

My understanding of his recommendation is to modify the information in the 1099-B by deducting the amount in the K-1 entitled "Cumulative Adjustments to Basis" from the Purchase Price (the basis)on the 1099-B. That will provide a correct amount for your basis and, even though it is a different number than reported on the 1099-B it will not trigger any alarms with the IRS because the basis of these investments is not reported by your broker.

I then removed all sales data from the K-1 form in Turbotax except that I entered the "Gain Subject to Recapture as Ordinary Income" as the Sales Price in TT.

That's my understanding of what the above posters were recommending and it makes sense because:

1. It ends up with your sales transaction in only one location on your return.

2. It accurately reflects the correct gain/loss from your sale of your MLP. 

3. It accurately puts the "Gain Subject to Recapture . . ." on your return making it subject to taxation.

@spoede1026 @Stumas11 the correct cost on the 1099b is purchase price + adjustments to basis + ord gain.  

Hi All,

My understanding of how to enter all this information is as follows:

-Enter All K-1 information as you normally would.

-When entering the Sale into Turbo Tax, list the "Partnership Basis" as 0, the selling expense as 0, and the Sale Price is the number in Box 7 of the Supplemental Sale info sent in your K-1, this is called "Gains Subject to Recapture as Ordinary income". Leave the Box labelled "1250 Gain" empty.

Does this seem correct?

Thanks for your help!

JS

This is happening to me too!  I followed the instructions to a "T" but it's doing the same thing and reporting the amount of ordinary gain on Form 8949 as Cap. Gain.  Not sure what is happening.  Will do the same thing and send in my check, but need to sort out.  Just saw some late replies so will revisit.  Why do they make this so complicated?  

The instructions listed on the K-1 are also quite helpful.

That makes sense to enter the ord. gain as a negative; however, I have a negative basis before the ord. gain, and the Cap Asset W/S won't let you enter a value less than zero.  It is easier just to add the basis and Ord gain together and enter that as the basis, as this is a positive number.  And, as others have pointed out, this should not be a flag, as the basis is not reported to the IRS.  

@DLWit5 @jet-setter A couple things:

• The goal in the K-1 interview is to make sure that it doesn't calculate any Cap Gain/Loss in that section.  You know you've got this right on the screen AFTER the "Enter Sale Information" screen -- the one titled "Review Investment Gain or Loss on Sale".  If this shows "zero" everywhere:  success.  If it shows any gain or loss, TT is going to mess up your return, and it will create extra 8949 entries to report that gain/loss.  You don't want that.
• The method to do that:  setting Sales Price to equal Ord Gain, or entering the inverse of Ord Gain as basis, is personal preference.  The only argument for the latter is that it works for the AMT column as well.
• Once that's out of the way, all that remains is setting the basis to the right number on the 1099-B.  Since basis probably wasn't reported to the IRS, you can just change it without using codes or adjustments.
• @DLWit5 You mention having a negative basis before adjusting for Ord Gain.  That's a problem.  If you've held onto the investment so long that you're cumulative adjustments exceed your purchase price, you were supposed to change the way you handled the K-1 in the year that happened:  disbursements needed to be reported as LT Cap Gain, and losses were potentially lost rather than suspended.  The accounting is complicated, and TT doesn't handle it well, so if this is your situation you may want to review with a professional.