I sold all my units of PTP Enterprise Products Partners in March 2023. My K-1 from 2022 shows a small remaining basis of about 25K. The proceeds from the sale are substantially more than that. The passive loss carry forward is substantial but the loss carry-forward plus the remaining basis is still quite a bit less than the sale proceeds. I'm afraid that if I don't estimate the Federal Income Tax impact of this total PTP unit sale, I may be subject to penalties due to under-estimating of Federal Income taxes for 2023. I don't think I'll get any documentation regarding the sale from the Partnership during 2023 and will have to wait until I get a final K-1 in 2024 for 2023.
Can anyone give me some guidance on estimating my tax liability from this transaction or advise if under-estimating due to lack of documentation on the sale will not result in a tax penalty?
Thanks in advance for your responses.
Rob
you have another surprise coming. you will get with the 2023 tax package a supplemental sales schedule that will show your cost (tax basis). so far easy. gain = sales price - cost. however the gain consists of two portions ordinary income and capital gain. there will be on the supplement a column labeled gain subject to recapture as ordinary income (column 7). I had this and was shocked that the ordinary income recapture exceed the sum total of the non-deductible passive losses over the years.
so capital gain would be sales price (column 3) less the sum of cost basis (column 6) + ordinary gain (column 7)
the ordinary gain portion is reported through the k-1 disposition section. the column 7 amount is also reported on the k-1 line 20AB at least in 2022. you are also supposed to file the 751 statement with your return which would require mailing it in.
as to 2023 estimates. here are the options to avoid penalties for underestimation of estimated tax payments.
There will be no federal penalties for not prepaying enough taxes during the year if withholding and
a) timely estimated tax payments equal or exceed 90% of your 2023 tax or
b) timely estimated tax payments equal or exceed 100% of your 2022 tax (110% if your 2022 adjusted gross income was more than $150K) or
c) the balance due after subtracting taxes withheld from 90% of your 2023 tax is less than $1,000 or
d) your total taxes are less than $1,000
state laws differ
i would suggest option 2 because once you finalize that return you know the total you have to prepay. 90% of 2023 requires guessing especially that surprise you'll encounter. the ordinary income I had to report was twice the cumulative passive losses. it's section 751 recapture
Tax package support usually provides a "gain/loss calculator" that will show you exactly what your Ordinary Gain and Cap Gain would have been as of the end of the year (just use the "Sell all Units option). It will be one of the icons on their site, possibly hidden by the three dots. That will obviously be off by a little given the time between 12/31/22 and your sale date, but probably not by that much. So between that, and your suspended losses, you can get a pretty good idea of what the tax impact of the sale will be.
Thanks Mike9241. Your response to my posted questions was very helpful, much appreciated and clarified some points for me.
At least now I can make other financial decisions knowing I'll have a hefty tax bill for 2023.
Thanks again....
Rob