topic K-1 Disposition of Partnership Interest in Get your taxes done using TurboTax

K-1 Disposition of Partnership Interest

OldArch — Sat, 21 Sep 2019 21:43:33 GMT

I've been struggling to understand the IRS instructions but am totally confused.

Several years ago I purchased a partnership in an oil well joint venture. It never made any money, went bust last year. I have a Final K-1.

My problem is understanding the Basis of partnership interest. Is that simply what I paid for it? Is the difference between that and the $0 I was paid, ordinary loss, or long-term loss?

I'm grateful for any attempt to explain this to me.

Re: K-1 Disposition of Partnership Interest

Anonymous — Sat, 21 Sep 2019 22:33:46 GMT

before reading below see if the partnership in the K-1 package provided you with a supplemental schedule to compute your gain or loss upon disposition

if not then

in box L on k-1 is tax basis box checked? if so, ending capital account should be $0 but that's not your basis because the partnership will make an adjustment to $0 it out since you are no longer a partner. in this case use the amount in beginning capital add capital contributed during year add current year income or subtract current year loss then subtract the amount , if any, in box 19. this is your basis for gain or loss

what if some other box is checked? , then you have some homework to do -

what you paid originally for the partnership interest (probably on 1099-B as cost)

less all tax net losses plus all tax net income (this would be items reported in part III but not necessarily all - box 14 - se earnings does not affect basis , box 16 only the actual foreign taxes would reduce basis, box 17 is only for alternative minimum tax purposes and not regular tax purposes, finally items in box 20 of which there are too many to tell you which are info items and which affect tax basis)

plus all tax net profits for same period

all amounts in box 19 reduce basis

other situations are possible. what if losses, deductions and distributions exceeded your basis

well at the point you tax basis became $0 you weren't at risk most likely and losses should have been deducted for those years or distributions might have resulted in negative basis and if that was the case some or all of those distributions should have been reported as capital gains

the basis on the 1099-B is wrong because brokers never see the K-1 and never reflect adjustments to basis for the K-1 activity. so the sale should be in the section basis not reported to IRS.

Re: K-1 Disposition of Partnership Interest

OldArch — Sun, 22 Sep 2019 01:49:02 GMT

I think that I might need the "For Dummies" version.

There does not seem to be a schedule provided for use with disposition.

"Tax basis" is indeed checked in Box L.

Beginning capital account 20, 042

Capital contributed during the year

Current year increase (decrease) -20,042

Withdrawal and distributions

Ending capital account 0

There is nothing in Box 19.

Would this make my Basis of partnership interest 20,042? That amount is substantially less than I had originally invested. I had hoped to be able to use the actual lost investment as the Cost basis, or at least have that calculated into the basis.

Assuming this much is correct, would the loss be "Ordinary loss" rather than "Long-term loss"?

Re: K-1 Disposition of Partnership Interest

dmertz — Fri, 26 Jun 2020 17:39:05 GMT

That implies that the adjusted cost basis is $0.

Re: K-1 Disposition of Partnership Interest

Pattywperry — Tue, 07 Apr 2020 01:28:03 GMT

Hi @Anonymous

I have a similar question and I can tell from this answer to this one that you know what you are talking about.

We always had a CPA doing our taxes until 2017 when I started Turbo Tax. I am doing 2018 (late) and one of my husband's oil investments dissolved in 2018. The very FIRST K-1 (2014) for the one that is dissolving was left off of our 2014 return and we need those losses. I THINK I fixed it but am not sure. See below for what I did and what I was going to send with the tax return. Do you think this will fly? Should I just leave out all the supporting documents and use the numbers that I came up with through the method below?

Thanks in advance.

Brian purchased interest in 2 partnerships (Silver Tusk ($12,500) and Red Hawk Resources I ($25,000)) that provided their first K-1s in 2014. We gave the K-1s to the CPA but they were not on the 2014 returns and we didn’t notice. 2015 K-1 was on 2015 return but because 2014 was missing the carry forward losses were incorrect on all returns through 2017.

I only noticed because Silver Tusk dissolved in 2018 and the Carry forward passive losses from 2017 were tiny which made no sense. In going through past K-1s and tax returns I found that 2015 was the first tax return that included the partnerships.

I believe that this 2018 return has the correct figures and since there was no taxable income and losses are passive until disposition there is no reason to amend 2014-2017 returns. I'm including this explanation and supporting documents in case you notice a discrepancy between 2017 and 2018.

Here is how I fixed the carry forward losses. I input the 2014 K-1s in to Turbo Tax software (2017 earliest I have). I printed the worksheets and combined the carry forward losses from the 2014 K-1 worksheets with the carry forward losses on the 2017 K-1 worksheets and used the combined figures on the 2018 return.

Attached** for each partnership:

Calculations showing what should have been on 2017 Return

2014 K-1

2014 worksheet

2017 worksheet

** not here, but if you want to see them lmk

Thanks again.

Re: Final K-1 Reorg. Not Disposition of Partnership Interest

MSMS — Fri, 26 Jun 2020 13:40:37 GMT

Being directed to disposition of partnership interest. The box is checked for a Final K-1 but the interest was not sold or disposed of but rather there was a Corporate Reorganization. I checked "Partnership was discontinued during 2019" but the errors mentioned above appear and the interest was not disposed of I cannot e-file and am in a quandary as to how to proceed other than to mail my return which is a cumbersome endeavor. I received Class A common stock in exchange for the common units in the partnership which is to qualify as a tax deferred exchange. Suggestions?

This was posted in forum with no answers May 8th under a different heading. July 15th is rapidly approaching!