Reporting MLP K-1 Information on Tax Return

[bilskro]

Question Regarding MLPs K-1 and reporting on 8949, 4797 and Schedule E.

Lets start with an easy one.  

1:  If K-1 Box 1 and Box 2  are positive do you check them as Passive or Non Passive.  I have seen examples both ways and never sure which one it is.

I know losses are suspended but can anything be written off like Box 20 Depletion or does that have to wait until you sell the MLP.

So now lets say I sell an MLP that I owned for 4 years and had -$100 ordinary losses each year on the year I sold it I had $500 ordinary Income.  From my understanding I can write the $400 losses against the $500 income on Schedule E.  

2:   When I sell, in addition to the $400 loss what else am I allowed to write off. How about that depletion from Box 20.  Or any Box 10 net section gains / losses that were losses in the past. What can you write off when you finally sell the MLP?

The rest of my Qs are from an actual MLP sell:

Sale Price From 1099:       $912
Cost From 1099:    - $4936 (This is before K-1 Adjustment)

Adjustment to Basis from K1:    $-2085

So Based on that My Adjust Cost Basis is:   $4936 minus $2085 = $2851

So My Total Gain / Loss is: $912 minus $2851 = -1939

Ordinary Gain from the MLP supplied K1 Table = $289

Therefore the Cap Gain is: $-1939 minus $289 = - $2228

Q1) First did I do all the calculation correctly?,

Q2) On Form 8949 for the Gain / Loss should it be the $-1939 (the total Gain) or -$2228 (the Capital Gain),

Q3) On Form 4797 I am reporting the Ordinary Gain of $289 with a sales price of $912. But I am not sure where the basis is suppose to come from. Do I just take $912 - $289 and make $623 as the basis??????

Q4) Now this is where it gets really tricky. Now that I am selling the MLP from what I read I can now take the years with passive losses and now apply those losses to any gains of that particular MLP or can the losses can be applied to all MLPs sold, I am not 100% sure on that one.?

Q5) Building on last question. Do I put all the prior year losses in Section E NonPassive Losses from Schedule K-1 showing a large rental loss on Schedule E and on the 1040? And what can I include in those losses? Can I only the Ordinary Business Income (loss) from K-1 Box 1 or can I include any of the other losses that were not allowed until you sold the MLP.

[bilskro]

nexchap,

Thanks for the reply.  I have owned many MLPs longer than I have used TT.  I have been trying to go back and create a spreadsheet with all the suspended losses.  I am pretty confident all the years where box 1 was negative is a suspended losses, but I am not sure about all the other boxes.  I used depletion as an example, because I saw it specifically mentioned in one of the K-1s as if it could offset income in the current year, but for the life of me I cannot figure out if it can or cannot.   But even if it cannot be deducted in the current year I want to know if it can be when I eventually sell other MLPs. Plus there are lots of codes for Box 20 and other boxes like Box 13.  

I am trying to understand what is a suspended loss and what is not.  On just 1 MLP there are multiple codes for Box 13 and Box 20 and those codes break down to more sub codes.  For example in my Box 20 one of the codes is T and then there is T1, T2 and so forth.  How in the world do you know which if any of these is a suspended loss and where that loss would eventually be reported.

I guess while I am on the subject I also have a question about the foreign tax credit.  There is a Code C for Gross Income sourced at partner level and a Code P for Total Foreign taxes paid.  But are you allowed to take the Foreign Tax Credit on an MLP or is a suspended credit until you sell the MLP.

[nexchap]

Are you saying that you never had anyone look at your past K-1s to calculate what had to be reported (e.g., positive numbers in boxes 2,3,5, or 6), or should be deducted (e.g., charitable contributions) and to also calculate the suspended losses?

If the answer is no -- that you have to rebuild all your past K-1s (and I'm assuming amend prior year returns for income missed), my suggestion is to either consult a Tax Preparer or to buy past year's of TT to see how the program handles it.  And I'm really not saying that to duck the question.  Its just that codes change from year to year (e.g., Foreign Taxes paid or accrued are different this year vs last).  New reporting shows up (e.g., this year brought QBI deductions and Excess Interest reporting).  There are Sec 751 and 754 statements to file.  If you have foreign taxes, they are eligible for the foreign tax credit but that has to go through Form 1116 and a completely separate set of calculations.  And is you've already figured out, some items get suspended while others are immediately reported and dealt with.  I simply wouldn't attempt it by hand....

The only other guidance that I can offer is that, in any given year, you should be able to make your spreadsheet reconcile what the K-1, Section L shows as "Current Yr Increase (Decrease)" -- the 4th line of that section -- with all the numbers on the K-1.  Items in boxes 1-10 tend to add together, and then items in boxes 13, 18, 20T(depletion), 16 (only the taxes paid or accrued) get subtracted from that.  Its a bit of a game, figuring out which codes can be ignored vs which ones figure in.  And it doesn't tell you what's suspended vs recognized.  But it at least shows you every number that "counts" -- that need to be figured into your taxes one way or the other.

EDITED TO ADD:  Here's one other random thought that may get you 90% of the way there, and save the expense of the prepare/past years TT purchase.  Created a dummy return in this year's TT.  Enter the first year's K-1, and see what it does to your taxes (items transferred to the return vs suspended).  You may have to play with some of the codes to get them to match up if they were different in prior years, and definitely ignore anything with QBI, but you'd at least be able to see (looking at the K-1 worksheet in Forms mode) how the suspended losses work.  Then repeat for the second year, etc.

That won't solve the issue of amending (if required), and it will probably allow you to calculate your suspended losses to a pretty good accuracy.

[nexchap]

If you enter your K-1 into Turbotax, it takes care of determining what can be used this year, or suspended until next year (including stuff like depletion).

The amount available to deduct from prior years (suspended losses) should be obtained from your prior year's return.  If you do a complete disposition, TT will release all of that against your general income (its reported on Sched E).  If you only to a partial disposition, TT will only release suspended losses to offset this year's total income from the same PTP (the Ordinary Gain will be added to whatever else is reported on this year's K-1 to determine the amount to release from suspended losses).

Your math looks correct.  Your Ord Income is 289, and TT will put that onto Form 4797.  Your Cap Gain (Loss) is -$2228.  To get that into the TT interview, follow these instructions:  https://ttlc.intuit.com/questions/3760966-how-i-report-the-sale-of-mlp-shares-in-turbo-tax-i-sold-al... (the key idea is to make sure only the Ord Income is entered into the K-1, and the Cap Gain calculation occurs completely outside the K-1).

For Box 1 or 2, are you entering this into the K-1 interview?  Where does it ask about passive vs nonpassive?  If this is from shares of an MLP (which is typically a PTP) then most share holders would be passive partners.