Final K1 Schedule D capital gains double counted

[vigneshj]

I had a real estate partnership that was disposed in 2022 and I received a K1.
I had invested $25,000 and received a final distribution of $45,000 for a real net gain of 20k.  But in the final K1 "Partner's capital account analysis" the beginning capital account is only $10,000 due to losses. Line 9a reported a gain of $35,000 (45k-10k) instead of the actual gain which is only $20k.
Using TT 2022 when I enter all the information schedule D shows as follows
Part 2 Line 10: 35K
Part 2 Line 12: 35K.
So the 35k gets double counted but one of the 35k gets offset in line 8 of 1040 due to passive allowed losses of -35k. But my question is why should I still pay capital gains on 35k? I should be paying only for 20K. How can I have the software correct this?
This is what I entered in TT 2022 K1.
Describe the Partnership: "This partnership ended in 2022."
Describe Partnership Disposal: "Complete disposition"
Tell Us About Your Sale: "Sold Partnership Interest"
Sale Information:
Sale Price: 45k (from final distribution)
Partnership Basis: 10k (even I made this 25K it did not make a difference).

[Mike9241]

you invested $25K

loss and distributions in prior years reduced your tax basis to $10K at the beginning of the year as reflected in schedule L

line 9a which is what the partnership reported as LTCG increases your tax basis to $45K

line 12 (section 179 deduction) which i do not understand would reduce your tax basis back to $10K.  the issue i see is how this could occur and the partnership have $45K which it distributed to you

resulting in a $35K gain on termination

I think the k-1 is wrong but since i don't have access to the partnership accounting, I can't be sure.

it would make more sense if line 12 was zero or 9c was $35K (or less). The norm for a real estate partnership is to have 1250 Gain (9c) when property is sold. It represents the portion of gain attributable to depreciation taken. line 9a includes line 9c 

so maybe it should be $10K beginning tax basis + $35K LTCG (9a) giving tax basis of $45K for which you received a distribution of $45K so no gain or loss upon termination which is normally what is to be expected if you owned your interest from inception.  

having a 179 deduction in the final year seems impossible because 179 is taken in the year the asset is acquired. but if disposed of in the same year no 179 is allowed. 

[vigneshj]

Sorry let me correct that there is no 179 deduction and the line 12 in K-1 is empty. Line 9c is also empty.

Section L reports as

Beginning capital account - 10k

Current year net income - 35k

Withdrawals - 45k

Ending capital account - 0.

I meant to say that in Schedule D which Turbo tax populates in Part 2 (of Schedule D) these two values,

Line 10: Total For all transactions reported on 8949 = 35k

Line 12: Net long term gain from Schedule K1 = 35K

The above is what causing the double counting.

[Mike9241]

It seems you made a mistake somewhere along the line of entering the k-1 and sales info. If the sale was not reported on form 1099-B then the proper way to report the sale in the k-1 sales section is Sales Proceeds $45K Basis of Partnership Interest $45k which results in zero gain thus only line 9 from the k-1 is reported as gain. nothing is separately entered on the 8949.

if reported on a 1099-B, this seems unlikely, then in the sales section of the k-1 both Sales Proceeds and Basis of Partnership are reported as zero and for the 8949 you enter a cost equal to sales proceeds again resulting in no gain

thus the only gain that should be showing is the amount from line 9 of the k-1 that will show on schedule D line 12

several other things make sure to check off final K-1 and full disposition - this is necessary, so any suspended passive losses are now allowed

the k-1 still seems unusual unless its only holding in the year of sale was land.   If a building was included then likely there should have been section 1250 recapture

[vigneshj]

Thanks for the info. The K1 was for sale of a residential apartment and not land. The sale was NOT reported on form 1099-B. So I can enter k-1 sales section as Sales Proceeds = $45K and Basis of Partnership Interest = $45k which results in zero gain. That's good now.

So line 9 from the k-1 is reported as gain which is $35k. But my actual gain was only 20k (I invested 25k and exited at 45k). So how can I reduce the reported capital gain in line 9 of k1, so that I don't have to pay tax on the difference of 15k.

[191512]

Did you ever get this resolved because I have the exact same problem!  Our gain is being counted twice causing our taxable income to be extremely high and incorrect in my opinion. How did you resolve??

thanks for any help you can give. 

[Mike9241]

you provided no details. To correctly report any gain or loss on termination, you need to know your tax basis.

if schedule L  is completed for the year of termination the beginning capital, for practical purposes, would be your tax basis at the start of the year. (to simplify liabilities are being ignored)

add

capital contributed during the year

current year income if there's a net profit otherwise

subtract

current year net loss

if there's anything on the line other increases (decreases) line, a determination would have to be made if it affect your tax basis

the total/net is your basis before withdrawals/distributions. for this number don't look at schedule L most of the time it's a plug so the ending capital is zero. rather look at line 19

hopefully 19A = your basis.