Can I "reset" the balance in my Capital Account in a Publicly Traded Partnership?

[Claude4]

I have a Traded Partnership (PTP) from which I have received enough distributions and tax losses to drive my capital account close to zero.  If I sell my PTP in December, and buy it back in January, will that "reset" my capital account to the January repurchase price?  If so, do I have to do this at year end, or can I just completely get out of the PTP and then buy back in at any time throughout the year to reset the capital account?  And, how long do I have to be out of the PTP before I can buy back in to reset the capital account?  (Note that I am asking only about the capital account.  I understand that I may realize ordinary income and capital gains from the transaction.)  

[Anonymous_]

PTPs do not follow the typical wash sale rules.

See https://ttlc.intuit.com/community/business-taxes/discussion/i-sold-partnership-shares-at-an-overall-...

[nexchap · Accepted solution]

Yes, you can reset just as you described:  sell completely, and then repurchase.  You can do the sale / repurchase within the calendar year (rather than waiting for Dec/Jan), though you may have to request that the K-1 preparer send you 2 K-1s:  one for the time leading to the complete disposition, and another starting with the repurchase.

As for how long you need to be out, resetting your capital account is different than avoiding a wash sale.  To reset the account, I suspect it might require just a day, but its probably best to ask the K-1 preparer since their computer systems need to be able to issue two different K-1s.

If you also want to avoid the basis accounting required for a wash sale:

• If you have an overall gain on the sale, wash rules don't apply (they only apply to losses).
• If you have an overall loss, you have to wait 31 days
• And as the link above discusses, if you have Ordinary Gain and a Capital Loss netting to a positive number wash sale might not apply (the author of that answer is confident, but since Ordinary Gain can also be an offset to suspended passive losses, and the thread didn't discuss how the suspended losses figure in to the gain/loss calculation, I'm not sure what the treatment is without getting a tax professional involved).

[Claude4]

OK, given the information, I have to conclude the following:

1. I am a long term holder of this PTP, and am sitting on nice gain, so the wash sale rule is irrelevant to me. I did not ask about it, and I specifically said that I was looking for insight into the capital account balance, and nothing else.  Yet the reflexive response is to discuss the wash sale rule.  I guess the world is full of day trading idiots.

2. I am a long term holder of a large oil and gas midstream Publicly Traded Partnership.  They generate tens of thousands of K1s.  So I don't think they are going to "bend the wheels" and issue me 2 K1s just for me.  But, maybe they do (and indeed have to) issue two K1s if you exit and re-enter a position in a PTP, as they would have to allocate income and deductions over the parts of the year you owned the partnership!  If their K1s are tied to reporting for a complete calendar year of activity, then I will have to be out of the PTP on 12/31 in order to reset my capital account.   I will have to call the partnership.        

Thank you both for responding to my question!

[nexchap]

@Claude4 Just to clarify why the volunteers who took time to respond mentioned "wash sale".  You asked about how much time you needed to be out, and clarified that you understood  the capital gains and ordinary income aspects of the trade, but made no mention of understanding the wash sale implications of being in and out, or that you were confident that you had a large gain on the sale.  So, I guess erring on being complete?  In addition, believe it or not, other people with similar questions stumble across these exchanges and appreciate getting complete answers.

As to getting 2 K-1s for the same year, I've done it so its definitely not a theoretical possibility.  But I was out for several months so don't know if 1 day, or 1 week, or a month end are required by the k-1 preparer.

[TheOne4]

@nexchap I always find your responses great and informative. I am curious though on claiming passive losses.  Have you given any more thought on whether one could claim passive losses against the ordinary income on a complete sale if one sells all their units but then buys some units later in the same calendar year, perhaps a month or so later?

[nexchap]

@TheOne4 As  long as "all gain or loss" from the disposition is realized, then any suspended losses can be used to offset any of your income.  So the only way a repurchase would affect that is if there was a loss that triggered wash sale rules:  in that case, "all gain or loss" is NOT realized (because of the wash sale) and you wouldn't have a complete disposition.

Bottom line:  repurchase after the 31 day wash sale window closes and the partnership starts over.