How I report the sale of MLP shares in Turbo Tax. I sold all shares.

[nexchap]

@TheHeurist-- With MLPs, the broker isn't reporting the cost basis to the IRS so adjustments are straightforward and aren't likely to generate questions.  In your case you're better off having the broker correct the 1099-B if they reported an incorrect cost basis.  Then there's nothing to adjust, or to explain the the IRS.

As to handling this in the interview, just enter 0 for proceeds and cost in the K-1 interview:  you report the Cap Gain in the 1099-B section, and the other K-1 stuff in the K-1 sections.

[feltongirl]

Thank you for all of your replies to people's questions.  It helped figure out what the problems are.  

This is for others who might find that TT has a mind of it's own.  It's actually from responses entered that are captured in the worksheets.  When you change your mind about something, there are entries that do not get erased or changed so they remain and causes issues on your form.  I had to go through the relevant worksheets to find these entries and delete them.  

These then cleared the entries that do not belong.  

Thank you once again.  

[GBL44]

Hello Nexchap:

   I just sold ET at a considerable loss.  The issue at hand has to do with with the many subsidiaries that ET has been involved with over the years and the requirement of the IRS to individually enter the K-1 for all of the subsidiaries individually . As time passed they incorportated some of the subsidiaries into ET.  The PAL of the subsidiaries are then left to linger in la la land.  How do I incorporate the  PAL of the incorporated subsidiaries from the past that no longer have an individual K-1 so that I can capture the PAL?  They will not be incorporated into the final K-1, at least to my knowledge.

GBL44

[GBL44]

Hello Nexchap:

   I just sold ET at a considerable loss.  The issue at hand has to do with with the many subsidiaries that ET has been involved with over the years and the requirement of the IRS to individually enter the K-1 for all of the subsidiaries individually . As time passed they incorportated some of the subsidiaries into ET.  The PAL of the subsidiaries are then left to linger in la la land.  How do I incorporate the  PAL of the incorporated subsidiaries from the past that no longer have an individual K-1 so that I can capture the PAL?  They will not be incorporated into the final K-1, at least to my knowledge.

GBL44

[nexchap]

@GBL44I've approached this in two steps.  First, when one of the subsidiaries disappears ("oldsub"), you fill out TT to reflect that the "partnership has ended", but that disposition "was not via a sale".  That triggers TT to stop prompting you for future K-1s, but leaves oldsub's suspended losses in limbo.

Second, in the following year, when entering the data for ET you'll get to the question about carrying over prior year losses.  TT will fill that automatically by grabbing last year's figures, but you can change that entry.  That's where I just add in the suspended losses from oldsub.  They're not part of ET.  Then I delete the oldsub K-1.

[Anonymous]

since it was sold in 2020 you'll receive a final k-1 with a supplemental schedule showing how to report the disposition. you should follow that. but if the 2020 k-1 and supplement have incomplete info and if you no longer own ET or any of the subs, the easiest way may be to show final k-1for each entity, fully disposed of, and use $0 for the sales price of the subs on the supplemental TT k-1 worksheet for disposition.  this will release the suspended PALs.     another way is to write down the PAL for regular tax, PAL for amt tax, any 199A loss carryover, and any other carryover info for each sub and add it to ET's then delete the K-1 for the subs.

for the sale of ET your loss may not be as large as you think.  brokers do not reduce your cost/basis by losses and distributions.  so the 1099B will be wrong.  the supplemental worksheet that ET will provide will show your adjusted basis.   sales price - adjusted basis + amount designated as gain subject to ordinary income recapture (section 751 gain)  =  capital gain/loss.    the ordinary income gets reported on the disposition worksheet for ET as sales price with a $0 basis. this will flow to form 4797 line 10. (unless the forms are changed again for 2020) 

[GBL44]

Thank you for your prompt response.  I suspect the filing process will still be somewhat of a nail biter.

[GBL44]

Thank you for your input.

[GBL44]

By the way Nexchap, I was planning on implementing you suggestion before my post.  I appreciate the substantiation of my thoughts.

[J295]

@nexchap 

@Anonymous 

I've read the entire thread and don't think I've seen this addressed yet ....

Our interest in EPD have been held a long time and I noticed that for the 2019 k-1 for the first time the capital account and estimated tax basis numbers went negative to around $1k (the numbers are identical).  The form also shows cumulative passive losses of nearly $9k.

The Q&A in the Instructions on K-1 state that "if your cash distributions cause your tax basis to fall below zero, you must report in taxable income the portion of your cash distributions necessary to restore your tax basis back to zero."

Question:   How/where do I report this on 1040/shedules/turbo tax?  Just a misc item as ordinary income?

Question:  When I report this am I permitted to use any of the cumulative passive losses to offset the income from the negative basis? 

Thank you!

[nexchap]

@J295-- To answer your specific question:  distributions in excess of basis would be reported as long term capital gains, which you can do by creating a 1099-B.  So if you need to report $100, you'd just have a 1099-B with code F that reports a sale of $100 and cost of $0.  You can do this in forms mode, or in the interview when it asks you if you have sales not reported by your broker.  You can't use suspended losses to offset this.

But your situation is a lot more complex than that, and this is where I advise talking to a CPA because its more complex than simply getting the right info into TT.  First, your 'tax basis' is not the same as your capital account:  the share of nonrecourse liabilities EPD allocates to you also figures in.  In accounting for future suspended losses, you no longer have capital at risk, which means form 6198 enters into your return.  Changes in nonrecourse allocations from year to year will need to be watched.  When you sell, making sure Ordinary Income matches with the changes in your allowed suspended losses may or may not be reflected in the K-1.  All-in-all, a mess which I'm not fluent enough to walk anyone through.

You do have two options to at least keep the problem from continuing into 2021:

• Buy more EPD, since any purchase will increase your capital account.  You'd have to buy enough to get back above 0, and hopefully keep you above 0 for a while.
• Sell all of EPD, and then buy back in 31 days (to avoid a wash sale).  That will close out all the calculations for your current holding, and allow you to start fresh assuming you still want to hold EPD.

[J295]

Thank you Nexchap  

[J295]

Thank you Nexchap.

I thought I had edited my original question to add this link, which at example 7 states that the cumulative losses can in fact be used to offset the long term gain from the basis going negative.  FYI.

https://www.forbes.com/sites/baldwin/2018/02/14/2018-tax-guide-to-mlps/

[nexchap]

@J295-- Interesting.  I stand corrected.  But I'd recommend confirming that article with an accountant.  As an example, if you sold a portion of your MLP, you'd be able to use suspended losses to offset the ordinary income, but not to offset the capital gain.  So being able to offset that capital gain in this case is a bit different.

Note that if you want TT to release suspended losses to offset that gain, you'll have to report the gain somewhere on the K-1 (like line 9a).  At this point, keep really good records, since you're entries for the K-1 aren't going to match what EPD sent.

[308Tom]

On this basis calculation on MLP partial sales - you will find that IRS Ruling

84-53 requires using a weighted average basis and states that: a partner has one unified basis in the total partnership interest.    So no lot selection with MLP Sales.