How do I report gain/loss on inherited partnerships I sold?

[Chrisgmitchell]

I inherited a small interest in 6 publicly-traded partnerships in 2025.  I immediately sold them once they were transferred to my brokerage account.   The broker included those sales on the 1099-B they provided although the form indicated the basis was NOT provided to the IRS.    My thought was to report the basis as the values of each partnership on the date of my father's death on Schedule D.    Doing this would result in LOSSES on every one of the sales.   I then received a K-1 on each of the partnerships.    However, the K-1 lists its own very different basis for form 8949.   Using those numbers as basis instead would result in GAINS on all the partnerships.   Right now I entered the sales from the 1099-B into Turbo Tax just like any other stock sale but also entered the K1 info into the section on partnerships.    Is this right because I have losses on the former and gains (extra income landing on Schedule 1 via form 4797) on the latter?     Should I delete the 1099-B info on these?   Or change the basis on the 1099-B section to match that basis provided on the K1?    Looking for guidance.   Thanks.

[M-MTax]

I'm going to ask @Rick19744 to get involved here because he's essentially an expert in partnership taxation but you would use the stepped-up basis to report the sale on your 8949 (and Schedule D).

You also need to report your share of the income (ordinary and otherwise) from the K-1 during the period following the death of the decedent through the date of the sale. Further, the decedent's share (prior to passing) as reflected on the K-1 needs to be reported on the final return, although you might be able to get away with reporting all of it on your return since K-1s are generally considered to be based on the end of the tax year stated on that Schedule. 

It should be noted that, for the most part, any suspended losses (passive losses) do not carry over to you and are simply lost pretty much forever in these scenarios.

I am sorry for your loss.

[Chrisgmitchell]

would be great hearing from Rick.   There is some minor income on the K1 forms that covers the time between when it got to my brokerage account and when it was sold.   I think I've got that part covered.   I'm just confused on what basis to use both for the 1099-B input as well as the K1 inputs.

[Rick19744]

This may warrant a one on one with a tax professional to help you navigate the "correct" gain or loss:

• As noted by @M-MTax when you inherited the PTP interest, you receive a step-up in the basis equal to the FMV at the date of death of the original owner.
• Determining this FMV at the date of death should be fairly straight forward since the PTP's are traded on the market.  This figure becomes your beginning tax basis.
  • Make sure you maintain your documentation for your beginning basis; FMV price of the PTP
  • Taxpayer's have the initial burden of proof 
• You would then adjust this tax basis by the applicable lines on the final K-1.
• This figure then becomes your "cost" basis (also your tax basis) when asked for this in TT.
• Your selling price is obviously what you received when you sold the PTP interest.
• Your holding period on inherited property would include the time owned by the decedent; so most likely LTCG.
• The "basis" reported on the K-1 most likely has not been stepped up by the PTP
• The information included with the K-1 may reflect some ordinary income recapture.  This will result in some recharacterization of your overall gain or loss.  TT will also ask for this information.
  • This recharacterization could change your loss (which you noted using the stepped up basis)
  • As an example, if you determine your loss to be $1,000, but there is $200 of ordinary income recapture, you will report the $200 of ordinary income recapture (should be reflected on form 4797) and then have an overall loss of $1,200; which nets to the $1,000 loss.
• I would recommend you use the 1099-B and net that to zero; to avoid double reporting of any gain / loss.  See next bullet.
• Then when reporting the final K-1 information in TT, the software will ask for the information noted above.  This information will then transfer appropriately to the form 8949 and Schedule D and only report the gain / loss once.

Partnership tax becomes difficult very quickly as noted above.  Depending on the $$ involved, as noted earlier, you may want to meet with a tax professional to make sure you arrive at the correct overall gain / loss.

[Mike9241]

sorry for your loss.

what you probably have is not in accordance with the tax laws because of the daily proration required,

There was the period your father owned it, then, depending on how the account was registered, it may have been property of his estate until it was probated and then you became the owner or it could have passed directly to you. 

Whether the 1099-B reflects the correct value is unknown. Regardless of whether they went through probate or not the starting point for you is the value on the date of death. Then there is the subsequent activity that may increase or decrease your basis basis. Finally you have to take into account any section 751 adjustment 

line 20AB on you k-1 

what you should do is go to the tax package website and look up each PTP.  for each, there should be contact info and a phone number to call 

https://www.taxpackagesupport.com/ 

Not sure the period involved between the date of death and your date of sale. The one thing I can almost guarantee is that the 1099-B does not have the correct basis because it's never informed of the partnership activity, so it does not know what your yax basis was. 

[Chrisgmitchell]

Rick - I want to thank you for your response.   I just want to take a moment to clarify it.    I have the stepped up basis from the date of death.  For example, let's assume $6,000 for that.   Every one of the K1s has a separate schedule with figures and I'm including an example on each:

A) Initial Basis $5,000

B)  Cumulative Adjustment to Basis.  Negative $200

C) Cost Basis $4800

Now let's assume the sale proceeds were $5,500.

I think what you are recommending I do is take my stepped-up basis of $6000 and subtract the k1 basis adjustment (B) and use a basis for $5,800.   Using this would result in a loss of $300 but this would just be entered on the Partnership inputs in Turbo Tax.   For the 1099-B section, I think you're saying to input a basis equal to the sales proceeds with a zero gain/loss.

I am already entering the k1 schedule value for "gain recapture as ordinary income" (which is also box 20AB on the K1) so I think I'm good there.  I do have a couple of related questions:

1) In the partnership section, TurboTax asks me to input the capital account information.  This is on the K1 but should the "capital contributed" input be set equal to the adjusted basis above?  If so would I need to adjust the "withdrawals and distributions" and "current year net income" inputs on that same screen?

2) Turbo Tax asks for purchase dates and sales dates.   Should the purchase date input be adjusted in any way because this is inherited?   I am indicating on another input screen that the owner died and the interest was transferred.

Thanks!

[Rick19744]

Follow-up thoughts:

• I'm not sure what (B) cumulative adjustment to basis represents
• What I recommended previously, is take your $6,000 beginning stepped up basis, adjust this for the applicable lines on the current year K-1 and this becomes your ending tax basis (also your cost basis).
• I agree with your understanding of the 1099-B
• When you enter the K-1 information in TT, and you indicate you "sold" the interest, at some point TT will ask for sales price, cost basis (tax basis) and any ordinary income recapture.  This is where the "sale" information should be reported.
• Don't worry about the capital account information.  TT doesn't really use this
• As noted previously, the decedent holding period "tacks" on to you, so you would enter this date; which provides you with LT gain or loss.
• Selling date should conform to the date on the 1099-B.

[Chrisgmitchell]

Rick - the "cumulative adjustment to basis" is on the separate schedule (sales schedule) mailed with all the K1 forms I received.  That schedule also includes other values such as:  gain subject to recapture as ordinary income, AMT gain/loss, adjustments for bonus depreciation, etc.    I was also able to determine that on all the K1 sales schedules that this "cumulative adjustment to basis" number is equal to the "current year net income/loss" number in the Capital account section of the K1 MINUS the value in Box 19A of the K1.   So I guess my last remaining question is if I should adjust my basis by this number.  

[PatriciaV]

Yes, if you can identify that the cumulative adjustments affect your outside basis (how you track your investment), then you should apply the total adjustment to your basis for the sale.

[Chrisgmitchell]

well I entered all these basis changes.  Before this, Turbo Tax was generating a form 4797 with an income number that flowed over to Line 4 of Schedule 1.  After the basis changes, all of these became ordinary losses rather than ordinary gains but form 4797 seems to have now disappeared and there is nothing flowing over to Line 4 Schedule 1.  Sound normal?   

[PatriciaV]

As Rick19744 mentioned previously, this transaction should result in a long-term capital loss, which would be reported on Schedule D and Form 1040 Line 7.

[Chrisgmitchell]

Line 7 is for a Short Term loss but something isn't looking right here.   Rick said to set the basis equal to the sale price on the 1099-B which I did.  So no gain or loss is flowing over to the Schedule D.   I put the loss on the K-1 (example attached) but I'm not seeing where that loss is flowing over to anything.   When I had a gain listed on that screen, it flowed to form 4797.  When its a loss, it seems to have disappeared.   

[Rick19744]

@Chrisgmitchell 

• I can't open either of your attachments for some reason
• Don't use the cumulative income / loss.  These items relate to when the decedent held the interest.
• As noted previously, your beginning basis is the FMV at date of death and then adjusted for the applicable items on the final K-1.
• What is your figure (amount) when you subtract your tax basis from your sales price?

[Chrisgmitchell]

Sorry you can't view the screen shot file I attached.   Here is what it looks like:

Enter Sale Information

          Regular Gain or Loss                                  AMT Gain or Loss

Sale Price                13,591

Selling Expense        0

Partnership Basis   14,615                                   Partnership Basis         0

Ordinary Gain         -1,024                                   Ordinary Gain              0

1250 Gain                  0                                           1250 Gain                    0

The "Partnership Basis" number I input was what we discussed and then I input the 1,024 loss as the difference between the sale price and the basis.  When I previously had a gain in that "Ordinary Gain" field it flowed to the 4797 and then to the Schedule 1.    When I input it as a loss, the 4797 goes away and I can't find where the loss is going.  Its definitely not flowing to the Schedule D.

[Rick19744]

A few follow-up questions / comments:

• Where did the ordinary gain figure come from?  
  • This figure should be reported to you in the K-1 information
• You should also have amounts reflected in the AMT column
  • Your tax basis amount should either be the same as regular, or adjusted by any applicable amounts in box 17.
• If the K-1 notes reflect some ordinary gain, this amount should be reflected on form 4797; which is what TT appears to have correctly reported.
  • Reporting ordinary gain as a loss most likely confuses the system as it should not be a loss; the software is asking for any "gain".  
  • This is NOT your overall gain / loss.  This is a separately reported amount on the K-1 information.