Final K1 with a Positive Ending Capital Account

[Ruby14]

I received a Final K1 with an Ending Capital Account amount with a positive 39,400.  I also have a Net Section 1231 gain of 132,339.  My understanding is that I should be able to offset the 1231 Gain with my Ending Capital Account amount.  If this is correct where in TT would I enter the 39,400?  When reviewing past posts someone responded and said to enter zero when TT asked what is the sale price, and enter in Cost basis as the Ending Capital Account amount.  Not sure if this is correct. Thanks for any help.

[Rick19744]

I will provide some comments:

• As a member / partner in a partnership you are responsible for maintaining your tax basis in this investment.
• Your tax basis most likely will not equal what is being reflected on your K-1 as tax capital.
• What you need to do is determine what your tax basis is at the beginning of 2021.
• Update your tax basis for all applicable line items on your final K-1 EXCEPT for any distributions reflected.
• Once you have determined your tax basis and go through the TT questions, you will now have the information to input.  Your selling price will be the distributions reflected on your final K-1 and your cost basis will be your tax basis.  TT will handle the rest.
• When computing your tax basis you can compare it to what is reflected as your tax capital just to see if everything makes sense.  But as noted, the amount on your K-1 is most likely not equal to your tax basis.

[Ruby14]

We have had this Partnership/LLC since 2017 at that time the Tax Basis Box was checked.  Does that mean that this will be the tax basis you are referring to in your post for 2021? Each year on my K1 they have brought forward my ending capital from the previous year and either added or subtracted any gain or distributions and then I had by ending capital amount.  

[Rick19744]

@Ruby14 that may make a difference.  However, tax basis capital is not the same as your outside tax basis.

Since you have only been in the LLC since 2017, if you have the K-1's from each year, this would be a fairly easy computation.

Also, did you receive any liquidating distribution; box 19 code A?

[Ruby14]

Rick, 

I did have a distribution amount of 91,513 on line 19A.  When I enter this as selling price (which is not the amount I received from the Partnership) it adds on to the Net 1231 Gain and then when I put the tax basis as the Cost Basis in TT  I  now have this large amount of gain which cannot be correct.  When I enter the Net 1231 gain of 132,339 TT puts this as my gain on Schedule Form 4797 which then goes to my Schedule D.  Why would I add more gain to that total?

Maybe I am not explaining this correctly. 

What other information could I provide to make this clearer for some help?

[Rick19744]

Follow-Up:

• Are you saying that the K-1 line 19A amount is not what you actually received?
• There are two components to your final K-1:
  • there are the amounts that reflect the entity level activity; reported on your K-1
  • there is the overall gain or loss on your investment; computed by you based on your tax basis
• The $132,339 is your share of the entity level gain.  This gets reported on the form 4797 and then gets reported in other parts of the return depending on the amount and where it is reported on the form 4797.  In your case since this is a positive figure the amount flows to Sch D and reported as a LT capital gain.
• This gain also increases your tax basis.  This is important and I am guessing this is the part of the transaction you are not understanding.
• What are the amounts you are reporting in TT for the "selling price" and "cost basis"?

[Ruby14]

We actually received 25,000 original investment plus 55,201 our portion of the selling price for a total of 80,201. This does not match the distribution amount on the K1 which show 91,513.

Our ending capital account amount of 39,400 which is our tax basis is correct.

I have not entered the selling and cost basis price because when I enter these amounts it makes my gain increase more with a gain of 41,101 and it also doubles my 1250 gain because it asks me to enter this again.  I had entered the 1250 amount on a previous worksheets.  This cannot be correct.

When I look at my Schedule D I now have a Capital Gain of 173,440!  How can this be correct when we only received the amount I listed above of 55,201 plus our original investment of 25,000.  Before the capital computation our regular income is only 37,476.  

After entering it says my tax is 19,664.  

What am I missing?

[Rick19744 · Accepted solution]

@Ruby14 

If you are saying you agree with the tax capital basis as equaling your tax basis, then I would use this amount.

What this is saying is that you have a capital loss on the transaction that has not been accounted for.

I would input the selling price as the distribution of $91,513 which agrees to the K-1 (I can't explain why this doesn't tie to what you are stating, but if the ending tax capital is correct, then we will use this amount).

Next, for the cost basis, you need to input $130,913.  This will then give you your $39,400 capital loss.

This amount is arrived as follows: Your ending amount of $39,400 has been reduced by the $91,513 distribution.  You need to eliminate that distribution and you do so by adding it back to give you the $130,913.

Hopefully this will get you closer to what you were expecting.

[Ruby14]

Rick,

Thank you!  This seems more in line of what we were thinking our tax would end up being!

[Ruby14]

Rick,  

Sorry just one more question.  I had an Unrecaptured 1250 of 16,874 on Line 9C of my K1. I entered this information in TT where it asked for what is on line 9c of my K1.  Then it also asked for this information where TT asks me for the Sale Information.  When I look at the Schedule D it shows that the Unrecaptured 1250 Gain is 33,748 which is double what is on my K1.  Should I have entered this amount in the TT section Enter Sale Information?