K-1 Distributed Capital Showing up as a Capital Gain

[PippaGolden]

TT has me paying capital gains tax on capital that I invested into a real estate venture. And I don't believe that I should be paying capital gains tax on capital that I initially invested into the venture. Can someone please let me know how I reflect this in TT so I am not paying capital gains tax on my initial capital investment? Below is information regarding how this happened in TT and a redacted copy of my K-1 for reference to my question.

In 2021, I invested $178,733 into a real estate fund. Last year there was a sale of a large portion of the assets. There was current year net income of $366,492 + returning $43,361 of my capital investment for a total 2024 distribution of $409,853 resulting in an ending capital account of $135,372 that is reflected in Part II L of the K-1. I have confirmed with the fund that the aforementioned $43,361 capital distribution is included in Part III 9a. TT is prompting me to enter the amount in Part III 9a, which is resulting in capital gain tax on the $43,361 in capital that was distributed back to me. I'm using TT online premium 2024. Thank you in advance. 

[Mike9241]

items of income/loss for federal income tax purposes

line 1 - (178991) deductibility of entire amount depends on many factors see form 8582 if this is a passive activity

line 5 - 641

line 9a 405361

line 10 -146400

line 13AE - (6919) may be of no tax benefit because portfolio expenses are not deductible 

net 366492 agrees with schedule L

you received distributions of 409853 (line 19a) against net income of the $366K. i see no issues. in some cases, with a partnership, you can pay taxes on income while getting no distributions in the same year. that's how they work.  

9c is a subcomponent of 9a it's tax at a different rate than the other capital gains you might see it on line 19 of schedule D. 

[PippaGolden]

Thank you. My question pertains to section L as well as 9a. If $43,361 of my capital investment was distributed back to me why do I have to pay capital gains tax on that specific amount that was distributed? I paid tax on that money before I invested into this venture. For example - if the venture had no income and $43,361 from the beginning capital was distributed, why would I have to pay capital gains tax on that amount? And more importantly tt is having me pay tax on section 9a, which includes $43,361 of my capital investment. It doesn’t make sense why I have to pay capital gains on capital I invested into the venture that was returned to me.