Calculating Partnership Basis for Final K1

[Trey]

@Rick19744 , @PatriciaV, and any other experts on K1.  I was a limited partner in a real estate investment partnership.  I'm trying to calculate my final partnership basis to input in Turbotax.  My tax basis at the end of 2021 was zero.  My final K1 for 2022 has the following values.

Part III:
1 Ordinary Business Income, -292 (I BELIEVE I SUBTRACT THIS FROM THE PRIOR YEAR BASIS SINCE IT IS NEGATIVE)
2 Net Rental Real Estate Income -26,503 (I BELIEVE SUBTRACT THIS FROM THE PRIOR YEAR BASIS SINCE IT IS NEGATIVE)

10 Net Section 1231 Gain 82,880 (I BELIEVE I ADD THIS TO THE BASIS)
19 Code A Distribution 53,967 (I DON'T INCLUDE THIS IN BASIS CALCULATION AS IT IS THE SALE PRICE)
20 Code V (Unrelated business taxable income) 43,345 (I'M NOT SURE IF THIS INFORMATION IS RELEVANT TO CALCULATING FINAL COST BASIS, AND--IF SO--IF I SHOULD ADD OR SUBTRACT IT)

20 Code Z (see statement) (I BELIEVE THIS INFO IS IRRELEVANT TO CALCULATING COST BASIS BUT LET ME KNOW IF I'M WRONG)
All other fields in Section III are empty

I know that the above 19 Code A Distribution figure of 53,967 will be my sale price.  I have the dates of purchase and sale.  I know that my final cost basis will be the prior year's tax basis adjusted for the above information.  Here is my stab at making the calculations for the partnership basis:

Prior Year Basis 0
- 292 (Field 1 Ordinary Business Income)
-26,503 (Field 2 Net Rental Real Estate Income)
+82,880 (Field 10 Net Section 1231)
-43,345 (Field 20 Code V -- Unrelated business taxable income -- REALLY DON'T KNOW IF I SHOULD ADD OR SUBTRACT THIS ONE, OR IF IT SHOULD BE INCLUDED AT ALL)

This gives a final basis of 12,740, but I don't have a lot of confidence if I have included the correct fields or made the right decision to add vs. subtract.

I appreciate your guidance on this.  I think I'm close to having the calculation but want to make sure I'm doing this right as it is my first time.  Thank you.

[Rick19744 · Accepted solution]

Some of the figures you noted are not applicable to you.

Your tax basis based on your facts is $56,085

You will input the k-1 amounts.

Since you will indicate that this is a final year k-1, TT will ask for your cost basis which is the 56,085 (this is your figures excluding the unrelated business income as this is only applicable to not for profits).

TT will ask for the “selling price” which is your liquidating distribution of 53,967.

This will then provide you with a small capital loss of $2,118.

TT should put everything in the right place.

[Trey]

This makes perfect sense.  Thank you very much, @Rick19744.

[Rick19744]

You are welcome.

[NicDor]

I read through the example & reply above but still have questions. Here is my example:

I am a limited partner in a real estate LLC. The deal closed out in 2022 sending a final K-1.

Part III line 19 had a distribution of $50,650. 

Part II, K has an ending capital account of -2582.

Part III, #2 has -5648 as income.

Part III #10 shows 1231 gain as $32,650.

Is my cost basis: -2582 -5648 + 32650 = 24,442?

What do I do with #9c, 1250 gain of $4724?

[MC125]

Hi, I appreciate the the response to Trey. My question has to do with what seems to be a double counting of capital gains when I enter the selling price and the tax basis, I get a positive figure as capital gain and this figure seems to be added to  Part III line 10 of 1251 gain to get a total capital gain. This figure exceeded the distribution, which was the actual money I received for the year. Is that right? I am puzzled and would appreciate any insights. Thank you in advance. 

[Mike9241]

a short summary which could be an oversimplification because we can't see the k-1

look at schedule L beginning capital

that's supposed to be your beginning tax basis

then look at the line that says current income or (loss) note that any amount on 9c is included in line 10 (9c is how a portion of line 10 is taxed),

the sum of the two lines, assuming no amount is on capital contributed during year (you would then add this amount in) 

or other increase(decrease) - if not zero, the effect on your tax basis unknown - the partnership would have to provide you with that info    

if the partnership was liquidated and no proceeds were received other than distributions on line 19. then line 19 becomes your sales price. you do not reduce basis for this.

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as an alternative you can reduce basis by the line 19 distributions 

then use sales price of zero 

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if this is not a publicly traded partnership and you received proceeds that were not distributions most likely they would add to sales price. 

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however, if this was publicly traded partnership the reporting is completely different. you should have been furnished with a sales schedule to determine proper reporting   

[MC125]

Hi Mike,

Thank you so much for your reply. It clarifies it but I do want to give you numbers and just double check. 

So my beginning capital is 39,768. 

Line 10 is 52,338.

Line 5 is 1672, 

Line 1 is -896,

line 2 is -1888. 

I add all these together to get at my basis of partnership interest, which is 90,994?

What do I do with the difference between 90,994. 

I subtract Line 19 distributions from basis of 90,994 and come up with 2,043. Do I do anything with 2,043? 

Thank you!

[Rick19744]

Based on your facts:

• Your tax basis is / should be the $90,994
• You don't mention what the line 19 amount is (distributions), but I am assuming $88,951?
• Using that figure, this leaves the $2,043 amount you noted.
• If the above is correct, you would enter the K-1 amounts into TT indicating that this is a final K-1. Do not enter any amount on line 19 at this point.
• There will be some screens with questions regarding your tax basis, sales amount, purchase date, disposition date, etc.
• Your tax basis (cost basis) will be the $90,994
• Your proceeds, sales amount (whatever the TT terminology is) would be the $88,951 (your K-1 line 19 amount).
• This will produce a capital loss in the amount of $2,043.  TT will determine ST or LT based on your input and will carry this to form 8949 and Schedule D.

[NicDor]

The examples have been so helpful, however when I crunch the numbers on a few of my K1's, I get a capital gain of -0- which seems odd. One such K1 is shown below:

Final K1 box checked
Part II
Box L
Beginning capital account -282
Current year net income 34,389
Withdrawals and Dist 34,107
Ending Capital Account 0

Part III
line 2 2,850 Net rental real estate income
line 9C 5,978 Unrecaptured section 1250 gain
line 10 31,789 Net section 1231 gain
line 18W 250 Other deductions (DEBT FINANCED DISTRIBUTION INT)
line 19A 34,107 Distributions
line 20N 1,302 BUSINESS INT EXPENSE INCL IN RENTAL REAL ESTATE INCOME

The final partnership cost basis = -282 + 2,850 + 31,789 -250 = 34107
But box 19A distributions which should be the sale price is also 34107
subtracting there is a net capital gain of -0-

Is this a common situation? Is there some underlying consideration that makes all these K1's have -0- capital gain?

(Some of the other K1's don't have an line 18W entry. but guessing that doesn't make a difference)

Many thanks!