K-1 Recapture Gain

[ClaireT6]

Hello -

I disposed of all of my interests in a K-1.  I received a 1099-B from the brokerage house and a K-1.  On the K-1 summary sheet I am told to recapture gain as ordinary income.  How do I do this if I am recording the sale on the 1099-B, not the K-1, and using the K-1 cost basis on the 1099-B?

There is also an AMT loss adjustment on the K-1 summary sheet that must be entered. How do I handle that?

Thank you, in advance, for your help.

[hbl3973]

ClaireT6,

A 1099-B has a Box 2 which if checked says to treat the gain/loss as ordinary income rather than capital gain.  I can't bring up TurboTax right now, but take a look and see about marking that box for the K-1 gain.  

If you have been hit with AMT in prior years, then we can work on reported the AMT loss.  Not that many taxpayers are hit with AMT these days.

[Anonymous]

the brokerage does not report the correct basis.  this is because they have no idea of what the partnership's  income, deductions and distributions were.    that summary sheet should be used to figure the gain.  it should show your adjusted basis

col 3   sales price  - you need to enter

col 4   original purchase price - should be there

col 5 cumulative adj to basis  -  should be there

col 6 cost basis - should be there and is really col 4 less col 5

col 7 gain - you compute - col 3 less col 6

col 8 ordinary income adj - should be there usually section 751 income - income form marking up inventory to FMV on date of sale and adj for unrecognized receivables.  could be other items

col 9 capital gain col 7 less col 8 - you compute - could result in loss 

for the amt adj col 10 enter on k-1 line 17b if there's an amount already there add or subtract or create a second line b

if you have unrecaptured 1250 gain box 12 enter on k-1 line 9c then use the quickzoom to get to additional info at top under 9c enter amount on line 3

final to get the losses to be allowed indicate disposition na dclick on link to provide info

in part II enter disposition info. despite what TT says this is the palce to report the income in col 8

sales price col 8

 basis 0

ordinary gain same as line 8

don't enter 1250 info here.

to check that you entered the ord correctly look at form 4797 this should appear on line 10 

[ClaireT6]

Thank you for your quick reply.  I had tried that but it seemed like all the income would then be considered ordinary.  There was a note that said "If you determine that a portion of a gain should be treated as ordinary income, you'll need to enter that amount as interest income in TurboTax, and increase your cost basis for this sale by the same amount"  I just didn't know if this made sense or if this would cause me to lose any passive loss adjustments. 

[ClaireT6]

Thank you so much.  I will look at this carefully and try your suggestion.  Will get back to you to let you know if it worked for me.

[ClaireT6]

Hi,

Thank you for your helpful response.

I looked at it carefully and have some questions.  I did realize that the 1099-B did not have the correct cost basis.  I updated the cost basis to correspond to the cost basis provided on my K-1’s summary sheet.  Are you saying that I should not report the 1099-B that was downloaded from my financial institution and use the K1 to report the sale?  I know there are conflicting opinions in the TT forum about whether omitting the 1099-B would kick out my tax return for audit. 

When you mention columns in your above response, are you referring to the columns in the K-1 Summary Sheet?  If so,  my K-1 Summary Sheet has some column headings that are different from the ones you mention.

Starting at column 7, the headings on my Summary Sheet are:

      7 -  GAIN SUBJECT TO RECAPTURE AS ORDINARY INCOME

      8 - AMT GAIN/LOSS ADJUSTMENT

      9 - PERCENTAGE LONG TERM

         ADJUSTED FOR BONUS DEPRECIATION

       10 - CUMULATIVE ADJUSTMENTS TO BASIS

       11 - GAIN SUBJECT TO RECAPTURE AS ORDINARY INCOME

I added an entry for the AMT adj (my col 😎 on line 17b as you suggested.

When you refer to Part II in your explanation, do you mean the TT Part II in the K1 Addl Info? , If yes, there was no col 8 on this form.  It is, however, where you would show a sale.  I don’t understand why I would put a cost basis of 0.  If I do that, then the long term gain is much higher than it should be when calculated from the K-1 summary sheet.

I guess I am still confused.  I understand that you should only report the sale once.  In order to only report the sale once, there seems to be two possible ways to go.

Method 1: You report the sale with the K1 cost basis on the 1099-B.

However, one then would have an issue showing the ordinary income on the 1099-B.  I entered the ordinary income on Part II with sales price 0 and cost basis 0, but TT suggests putting the ordinary income as interest and increasing your cost basis on the 1099-B by that amount.

Method 2:  You omit the 1099-B and use only the K1 to show the sale.

I have read that this can cause your tax return to kick out for audit.  I don’t know if it is allowable to update the 1099-B to make the sale price and cost price the same so that no income is generated by the 1099-B.

The tax results from both of the above methods is the same.

Finally, is there a better method than either of these two?  If not, which method is the correct one?  

I do appreciate your advice.  Thank you again for your help.

[ThomasM125]

If you didn't report the 1099-B form, the IRS would likely adjust your tax after you submitted it by assessing an amount due based on the sales amount reported on the 1099-B form. You could then explain what you did and if the correct tax was calculated, the IRS would abate the tax due and all would be good.

I would think it best then to report the 1099-B form information the way it is presented, but with an adjustment to the cost basis to reflect the correct amount of tax due.

You will see an option to adjust the cost basis entered on a 1099-B form on the screen you enter the form information on. Look for where it says "I'll enter additional info on my own":

[erlwebmail]

For the 2021 returns, enter (or download) your broker information for Schedule D. Later, if and when you then get into the K-1 input for the shares you disposed of and reach the "Enter Sale Information" page, click on the "forms" button. Down in "Part II" you'll see some bold print saying "NOTE: If this is a full or partial disposition of a publicly traded partnership (PTP) or master limited partnership (MLP) that was reported to you on a Form 1099-B, enter a sales price of zero on line 5 and a basis of zero on line 7 below. Enter the 1099-B transaction on Schedule D, checking the appropriate "Reported on 1099-B" box A or B. See Help."

I downloaded my info from my broker. When I reached the "Enter Sale Information" page and was filling in the K-1 information, I opened the form and entered zeroes as suggested, in the area just below the note that I mentioned above.  ...no double taxation that way!

However, I looked all over the Schedule D form and couldn't find any "Reported on 1099-B" check boxes. If you find 'em, please reply!