Publicly Traded Partnership (PTP) K-1 and 1099-B cost basis adjustment - how?

[one_of_the_many]

I researched this topic quite a bit but I still find it very confusing. Please kindly help.

For my data, I traded "PROSHARES SHORT VIX SHORT-TERM FUTURES ETF (SVXY)" in 2020. I sold all my shares at a loss, and I received a Final K-1.

But first of all, I am not going to trade those ETFs that would give out a K-1 again anymore. It's simply too much a pain/hurdle to file tax for it. For those who want to avoid this kind of tax pain, see this list for Proshares: https://www.proshares.com/k-1_tax_information/

Here is what's on my K-1:

Beginning capital account: 0

Capital contributed during the year: 29,905

Current year net income (loss): -1,924

Other increase (decrease): 0

Withdrawals & distributions: (27,981)

Ending capital account: 0

So my understanding is that the partnership loss of $1,924 has passed to me based on my shares and holding period with Proshares, and this loss is conceptually different from my buy/sell transactions of SVXY with my broker (which have already been reported in 1099-B).

Now I want to include this $1,924 loss somehow in 1099-B to adjust the cost basis in 1099-B so that the capital loss carryover is not double counting.

How do I enter that in 1099-B? I believe this needs to be entered as a total number. But there's no up-to-date tutorial in this regard. Please provide as much detail as possible. Thank you!

After I learn the correct method, I promise to post the final solution in this message thread.

p.s. I believe the answer lies within here: https://www.irs.gov/instructions/i1065sk1

"Partner's Instructions for Schedule K-1 (Form 1065) (2020)".

Look at the section "Publicly traded partnerships (PTP)",

where we (investors) are the "Partner" and Proshares is the "Partnership".

Specifically, it says the following:

"4. If you have an overall loss and you disposed of your entire interest in the PTP to an unrelated person in a fully taxable transaction during the year, your losses (including prior year unallowed losses) allocable to the activity for the year are not limited by the passive loss rules. A fully taxable transaction is one in which you recognize all your realized gain or loss. Report the income and losses on the forms and schedules you normally use."

[nexchap]

There should be a sales schedule with the K-1 that shows exactly what your adjustments to basis are.  It may be $1,924, or it may be higher if you also had distributions.

How you adjust your 1099-B will depend on whether its code A/D (basis reported to the IRS) or code B/E (basis not reported). 

• If B/E, just change the number provided by the broker to whatever it should be.
• Id A/D, there will be a spot in the interview to make adjustments.  You'll check the "incorrect basis" box and then TT will have you put in the correct number.

[one_of_the_many]

Hi nextchap,

The last page of my K-1 (2020 SALES SCHEDULE) has a column called "5. Cumulative Adjustments To Basis", which is exactly -1,924.

But for A/D (basis reported to the IRS), in 1099-B, there are many transactions.

I do see that there is a spot in the interview to make the adjustment. However, given so many transactions in 1099-B and only 1 adjustment from K-1, do I just pick the last transaction of SVXY I had on the 1099-B as a representative, check "incorrect basis", and then put in "-1,924" for the correct number?

Or do I create another 1099-B, one liner, from scratch for SVXY, have $0 and $0 in cost basis and proceeds, check "incorrect basis", and put in "-1,924" there instead?

Thank you!

[nexchap]

@one_of_the_many You can't do the last thing you suggested, because you can't enter a negative basis.  But you have a couple options:

• The 100% completely, obsessively, perfect method would be to adjust the basis of every single trade (you'd have to spread the adjustment based on shares and days owned).  This would be a lot of work and unnecessary.
• The 'good enough' approach is to allocate the adjustment to a couple of trades where it won't make the basis negative.

Since the point of the adjustment is to make sure you pay capital gains tax on the extra $1,924, as long as you're adjustments deliver that result the IRS will be satisfied.

[one_of_the_many]

@nexchap Thank you. Is it possible to NOT alter the original 1099-B at all?

Instead, can we enter info in the K-1 interview to cancel out the subtotal # of this ETF from the original 1099-B?

[Mike9241]

assuming the $29905 is what you paid in 2020 for it, then since the sales info worksheet is showing adjustments to basis as -1924 your tax basis would be $27,981.  the withdrawals and distributions line is a plug to zero out your a/c. since the adjustmets to basis is the same as the loss, you evidently got no actual distributions.

all the trades for this security should be coded B - short-term trade with cost basis not reported to IRS.

for type B you can ignore the tax basis/cost on the 1099-B, use the correct tax/cost basis. 

also, make sure to indicate final k-1 and that you disposed of your entire interest. this should take you to another page to provide certain disposition info.  do not report the sale here. this will cause problems because this section is for sales where the proceeds are not on a 1099-B

 but you need to complete it so that loss (1924) is allowed.  for sales proceeds use 0 and for cost use 0 so net gain or loss is 0.

note this assumes that there is not an additional column on the supplemental sales schedule showing ordinary income on disposition - report on 4797 line 10  or possibly gain subject to recapture as ordinary income

 this amount would add to your tax basis.

then in the sales section of the 1065 form this would be entered as proceeds and ordinary income  

[nexchap]

@one_of_the_many That's a 3rd way to get to the same goal, since you did a complete disposition.  You're objective is to get an additional short term gain of $1,924 into your tax return.  If you enter a gain into the K-1 section of the interview, TT will create a new 1099-B, coded C (for short term revenue and cost NOT reported to IRS).  So you'd have to give TT dates for the purchase and disposition, and then enter $1,924 for the sales price, and 0 for the cost.

[one_of_the_many]

@nexchap  I think I got what you meant. TT does not allow negative cost basis and I had to add a Box B item in 1099-B for a gain (based on "Cumulative Adjustments to Basis") to cancel out the loss from K-1. I entered as the following. It does appear to resolve the double counting problem. Does that look right?

[one_of_the_many]

@Mike9241 

I added one item in 1099-B to indicate a gain of 1,924 to cancel out the loss of -1,924 from K-1 (the value seen in "Cumulative Adjustments to Basis"), to fix double counting. Does that look right?

[nexchap]

@one_of_the_many That looks fine.  I'm surprised TT will take a negative cost basis, but if it does, great! 

[one_of_the_many]

@nexchap 

negative. It does accept negative cost basis in K-1 interview, but when I did a final review, it forces me to mail a paper version to IRS, instead of an electronic version. I modified 1099-B instead. Please see my reply above. Does that look right? I hope so 🙂

[one_of_the_many]

Going through all these, I have to say,

This YouTube video has provided all the needed answer. But after watching this for the 5th time, I started to be able to understand what it really talked about...

https://www.youtube.com/watch?v=-UelaEaxp5A

[one_of_the_many]

@nexchap can you please confirm if this looks correct? From K-1 "Cumulative Adjustments to Basis", it's -1,924. To cancel out the loss so that it's not double counting, in 1099-B, I entered a one-liner for an extra 1,924 gain to offset K-1 loss. Given that TT does not allow negative cost basis, I used proceeds 1,924 and cost basis 0. 

Please confirm if this is correct. It is correct per my understanding so far.

[nexchap]

@one_of_the_many That works too, though it should be code C (for revenue and cost not reported to IRS)

[one_of_the_many]

@nexchap 

Of course! 

(A) Short-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS (see Note above) (B) Short-term transactions reported on Form(s) 1099-B showing basis wasn’t reported to the IRS

(C). Short-term transactions not reported to you on Form 1099-B

Since it does not change the original 1099-B, it should be (C)

Thanks, my friend!