MLP Return of Capital

[b9423w1]

I own units in a publicly traded MLP. On the K-1, the capital account shows a negative balance.Does this mean I have to declare the difference between 0 and the negative amount as a capital gain in the current year? I have not sold or disposed of the units in any way,I still own the original number I originally purchased.

[M-MTax]

Not a big deal.....https://www.irs.gov/businesses/partnerships/form-1065-freque[product key removed]ions

[b9423w1]

When I go to that site I get a 404 error

[nexchap]

This is not a simple problem, and I'd advise sitting down with a CPA to work through all the implications, especially since you'll have to repeat the exercise every year you own the MLP plus do some more figuring when you eventually sell.

There are a couple reasons its not simple:

• In the best case, when nonrecourse liabilities aren't part of the picture, you first have to figure out what your basis would have been ignoring distributions.  The amount below zero is lost forever -- it can't be added to your suspended losses since you don't have basis.  Then the difference between your reported capital account and that separately figured basis would be declared as a "distribution in excess of basis" on sched D.  In future years, all basis calculations will have to be continued in your own records, since the K-1 will keep reporting a steadily more negative number.  This is the "simple" case
• If the MLP allocates you any nonrecourse liabilities, then its actually more complicated.  You may still have basis, but you no longer have capital at risk which brings form 6198 into play.  This creates another category of record keeping and complexity where I'm not comfortable trying to give advice, let alone determine if Turbotax can track any of it for you.

Note that if you don't want to make this an annual exercise, you have two options:

• Do a complete disposition, and then repurchase in 31 days (to avoid a wash sale).  This forces you to recognize any potential taxes, but at least resets your capital account
• Purchase enough new shares annually to keep your capital account positive.

Sorry I can't be of more help.