1099-B and K-1 Form

I may be able to help, but first need a little more info.  Typically a K-1 won't report the proceeds from a sale:  your broker sees that information, but the partnership is only notified that you sold xx units.  So where on the K-1 is it telling you that the sale was for $3220?  And how much did you actually sell for (according to your own records)?

Under Schedule K-1 "Partner's share of income, Deductions and Credits" item L "Partner's Capital Account Analysis" item "Withdrawals & Distribution" - that is where the value of $3220.  I actually sold for $3,100 per the 1099-B Broker and my records.  No Dividends or other distribution since only held for a few months.  

OK.  That $3220 is not your revenue.  "Withdrawals" on that line refers to the cost basis you withdrew, not how much you sold it for.

As a simple example,

• if your beginning capital account was $0,
• you bought for $2400:  "Capital contributed"... would show $2400
• every line on the K-1 is 0:  "Current year net income" would show $0
• you sold late in the year for $3100:  "Withdrawals and distributions" would show $2400 -- the value of the capital you originally contributed.

In your case, since you bought for $2400, and received no distributions, I'd assume there's $820 worth of income showing up on the K-1, which is what raises your Capital to $3220.  That $820 is going to show up on your return somewhere (make sure you verify that!), and you'll be taxed on it.  As a result, you increase your basis on your 1099-B by that $820 to avoid any extra taxation.

• In the real world, you spent $2400 and received $3100 for a profit of $700.  You should pay taxes on $700
• In the tax world, you got some phantom stuff on the K-1 worth $820.  So you get to change the basis on your 1099-B to give a Cap Loss of $120.  Again, you pay taxes on a total of $700.

Note that its a little more complicated if the Sales Schedule shows Ordinary Income, but I don't think that applies to USO

Agreed, the $3,220 is not the "revenue" per se.  Since "beginning account" was "0", then added capital ($2,400 to buy the ETF).  Then over the holding period had account income of $820,  then withdraw everything ($2,400 +$820=$3,220) leaving the "Ending Capital Account" as "0".  So to make everything balance, I will increase the "Cost Basis" on my 1099-B form (since it's not reported to the IRS) until my tax is the same as it was without the K-1.  Looks like I'll have to add almost $230 to make it balance.  I guess that's because the way a K-1 is treated (short and long term) versus how a simple short term stock transaction is treated.

Thanks for the help 

@bobp1426 

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@bobp1426 wrote:

So to make everything balance, I will increase the "Cost Basis" on my 1099-B form (since it's not reported to the IRS) until my tax is the same as it was without the K-1. 

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Just to clarify, you're not adjusting the basis to get to a total "tax" number.  You adjust to make sure the amount of income that's taxed isn't double-counted.  The amount of tax you pay on a K-1 investment will be affected by all the different rates the IRS applies to different types of income (int, div, qual div, long vs short term cap gain, etc) as well as any other limitations imposed by your return.  There's no reason for the final tax on this buy/sell to match a similar buy/sell in a regular corporation.

Good Morning Nexcap.  I'm a little confused by your answer.   Here is my analysis.  For argument sake, when there was no K-1, my Total Tax on my return for everything with only the $700 gain from the 1099-B was $1,950.  When I add the K-1 form, the Total Tax on my return jumps to $2,011.  So clearly I'm being taxed twice.  This shows up on Schedule D as: Short term gain of $700 (from 1099-B), $328 (from K-1) and Long Term gain of $492 (from K-1).  A total taxation of $1,520 ($700 + $820).   (The K-1 has both long and short term due to Code C - Contracts and Saddles on the K-1).

I agree, I should only be taxed on the short term gain of the 1099-B of the $700.  The easiest way I see to adjust so that my Total Tax due is back to $1,950 is to adjust the cost basis on the 1099-B (since that is not reported to the IRS).  I did this adjustment on the form "Capital Gain Adjustment Worksheet".  In Part II "Manual Adjustment", I entered Code O and a negative $350.  That increased my 1099-B cost basis to $2,750.  Now my Total Tax Due is back to $1,950.   Basically the Long Term gain from the K-1 was counteracted by the 1099-B gain.

So now both are shown, K-1 and 1099-B (needed since sale amount is reported to IRS) and Total Tax Due is back to the original amount (without the K-1).  Does this make sense?  Anything else I should Do?

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@bobp1426 wrote:

I agree, I should only be taxed on the short term gain of the 1099-B of the $700. 

 

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@bobp1426 The line above (with my emphasis) is where the problem lies.  You only pay tax on a total of $700, but you don't control the tax rate.  You're going to pay long term rates on $492, and short term rates on $208 ($328 from K-1 and $120 loss from 1099-B after basis adjustment).  Your tax should go down:  because of the way the IRS handles straddles, part of your short term gain became long term gain.  That's a win for you.

Note that it can go the other way too.  If the partnership had reported Ordinary Income, part of your gain would have been taxed at normal, W-2 like levels.

Thanks for your help and I think I'm zeroing on it.

OK, sounds good about lower taxes due to short and long term rates, but what do I do with the 1099-B?  If I adjusting the 1099-B cost basis to get back to $1,950 Total Return is not the best method, then what to do adjust the Cost Basis on the 1099-B? 

The Original Cost basis on the 1099-B was $2,400.  It sounds like I should increase the Cost Basis until I have a lost of $120 (difference between 1099-B $700 and K-1 $820).  Is that what you're suggesting?  Please put up some values if not correct assumption.  Thanks again

@bobp1426 You just add $820 to your cost basis on the 1099-B.  So if you started at $2400, the correct value is $3220.

Its not a coincidence that this matches the "Withdrawals and Distributions" line on the K-1:  the Partnership added $820 to your original basis, and when you sold your basis was sitting at $3220.

Thanks for your help - I really appreciate it.  It is amazing that with all these threads on this subject, TT hasn't decided to provide a solution.  I'll go ahead and add the $820 to the 1099-B cost basis which for that transaction gives a loss of $120.  That is $2,400 + $820=3,220.  Sale price on 1099-B was $3,100 less New Cost Basis of $3,220 = -$120.

This actually brings the Total Return below the original basis with only the 1099-B.  New Total Tax, due to long and short term profits from K-1 is now $1,890.   

NOTE: I had followed your previous tread that I found in June 7, 2019 which I assume still applies.  I followed your example, then added the $820 to my cost basis from the 1099-B.  This was your previous example back in 2019:

USO's legal structure is that of a partnership. that's why you got a k-1. so you need to report the k-1 info on your tax return.  in addition, the 1099-B shows only your original tax basis (what you paid to purchase it in the section - cost not reported to IRS section of 1099-B (type B or D depending on holding period)   with the K-1 you should have received a sales schedule which will allow you to compute your correct tax basis which then should be substituted for what's on the broker's statement.  

the 1099-B shows only your original tax basis - the reason for this is the broker receives no updates as to items affecting tax basis such as the income/loss and distributions all of which affect your tax basis 

My question is for NexChamp.

I owned a MLP which I sold in its entirety in 2020 and I am having some issues with Turbotax filling in part II Schedule E.  I followed your suggestions (checked Partnership ended in 2020 (final K1), Complete disposition, Sold partnership interest, Purchase date 8/5/2011, sale date 8/5/2020).  Entered the following: (Sale Price: 0

Ordinary Gain from my K-1: 3893, AMT ordinary Gain 3873.

Used Inverse of above numbers as Partnership Basis: -3893, -3873)

The next TT screen Review of Disposition/Sale: $0 short term and $0 long term gain/loss

Form 4797 appropriately shows my Ordinary gain as 3893 in part II box 10 line G.

I checked that I have passive carryover losses and all my investment is at risk and I have all the correct information entered on the PTP worksheets in regards to Ordinary income for Schedule E: In columns (a) I have the current year's Income $194 and column (b) I have my cumulative prior years unallowed losses (-1389) and column (c) shows a net loss of -1195

I believe this should should populate SchE as follows:

Line 28 column (g): 1389  and column (h) as 194   Both as Passive Income/Loss; however, TT entered the net losses from the worksheet on Schedule E line 28 column (i)  NON-PASSIVE Loss. 

I am uncertain if I need to create a separate PTP work sheet and designate this PYA to separately report prior years passive losses so that it populates Schedule E correctly. Or if Schedule E is correct.  Can you help me please?

@bobp1426 That thread still applies.  Now that you've finished, its still a good idea to just double-check the forms:  make sure there's only one 1099-B (that the K-1 interview didn't create one) showing the correct Cap Loss, and that the other K-1 entries have made it to the right place.

@LaJolla I believe the Sched E is correct.  While you own the partnership its possible for passive losses to be released to Sched E (e.g., the partnership reports $100 in income, which would release $100 in suspended losses to Sched E).  In that case, that $100 would show up in the 'passive' column reflecting that they're just offsetting passive income elsewhere on the return.  But when you do a complete disposition, those losses get treated as non-passive meaning they can offset any income.  That's why they're appearing in the non-passive column.

Note that I'm not an expert on this, and there may be a tax attorney somewhere who'll argue that the way TT is handling it is incorrect and the program has a long-standing bug, but this is how I've always seen TT handle complete dispositions and the above logic makes sense to me.  Hope that helps.

Hi Nexchap;  Some more information that I think solves my issue and hopefully others.  In the TT interview, I followed everything you said, i.e. "Partnership ended in 2020", then next screen "Complete Disposition", then next screen "Sold Partnership Interest".  Then enter the dates sold then get to the "Enter Sales Information" screen.  Then entered the following based on my Sales Schedule which only shows dates, and: Purchase Amount ($2,400), Adjustments to Basis ($820) and Cost Basis ($,3220):

Sales Price = 0

Selling Expense = 0 

Partnership Basis =0

Ordinary Gain = 

1250 Gain = 

Did this based on what you said and the instructions from TT for line 5 and 7.  Since Line 8 Ordinary Gain is calculated by TT, didn't enter anything.  Interesting it says what you previously recommended (see below) - guess they've updated something. 

I then adjusted the 1099-B Cost Basis by adding the $820 for a net total of $3,220.  That shows a loss of $120, but in the end it balances out.   Everything else seems to appear correctly.  Form 6781 shows $328 short term and $492 long term, for this USO Partnership.  Schedule D now shows for the Broker 1099-B for this transaction that I adjusted, a loss of $120.  Best part, NO new Entries on Schedule D.  

With the Short and Long Term split with USO's K-1, my taxes actually went down by $60.  So I'll file an amended return with the new K-1 info.  I guess it is best to state that "adjustments made to 1099-B for this transaction due to K-1 information".  Should be OK - Did I do the correct inputs? 

Thanks Again for all your Help and I'm sure this thread will help others in a similar situation.  

Oh, here is what 2020 TT for Line 5 and Line 7 say (see NOTE): 

Line 5 - Sales price

Enter the selling price of the interest. For abandonment, enter zero. For liquidations, enter the value of the assets received. NOTE: If this is a disposition of a publicly traded partnership (PTP) or a master limited partnership (MLP) that was reported on a Form 1099-B, enter zero for both the sales price and the basis on lines 5 and 7 here and report the sale as normal on Schedule D, checking the appropriate "Reported on 1099-B" Box A or Box B. By reporting the sale of the PTP or MLP on Schedule D and entering zero as the sales price and basis on this K-1 Worksheet, the disposition will get processed correctly throughout the return.

Line 7 - Basis of partnership interest

Enter the partner's basis in the partnership here. Ideally, basis should be tracked each year on a worksheet in a permanent tax file. The program will assume that the basis for Alternative Minimum Tax purposes is the same as for regular tax purposes. You may change this entry, if this assumption is not correct. NOTE: If this is a disposition of a publicly traded partnership (PTP) or a master limited partnership (MLP) that was reported on a Form 1099-B, enter zero for both the sales price and the basis on lines 5 and 7 here and report the sale as normal on Schedule D, checking the appropriate "Reported on 1099-B" Box A or Box B. By reporting the sale of the PTP or MLP on Schedule D and entering zero as the sales price and basis on this K-1 Worksheet, the disposition will get processed correctly throughout the return.

Lines 8, 9, 10 and 11 - Gain (loss)

The program will calculate lines 8, 10, and 11. In the case of liquidations, enter any ordinary gain, as reported by the partnership, on line 9. Note: In the case of abandonments, the entire loss will be treated as ordinary loss and be shown on line 9.

when you dispose of a passive activity those passive losses become non passive.  each MLP stands to its own the passive loss from one can't be used to offset the passive income from another. so if you have two PTP's one with income and one with loss. the income will flow to schedule E and the loss will be suspended, 

also, should you have one PTP with income greater than its prior year passive losses the amount of current year income = to prior year passive losses will show up in the passive column while the excess will be non-passive.  just the strange rules that govern tax reporting for PTP's 

For Nexchap;  Forgot to mention that all the Sales Schedule is entered previously "Enter Capital Account Information".  Thanks Again

By the way I just tried creating a separate k-1 to account for prior years suspended carryover losses which I designated PYA.

In doing so, the current Year's Ordinary income (i.e. amount in Box 1 on k-1): 194 shows up on Schedule E column (k) "NON-PASSIVE" income and the cumulative prior   years suspended passive carry over losses show up on a separate line on Sch E column (i) -1389 "NON-PASSIVE" losses.

Again I am uncertain that this is correct since the income/losses is from a PTP (master limited partnership) which by definition falls under PASSIVE income and my past two years Schedule E when I had positive income listed in Box 1 on my K 1, showed the current year income listed in under column h which was off set by an equal amount of passive losses since I was able to utilize/release some of the prior suspended passive losses once my K-1 showed a net gain in 2018 and 2019 and my cumulative suspended net losses were appropriately adjusted to  account for this.

Am I doing something wrong, or did Turbotax correctly input my income and cumulative losses correctly on the Sch E under the "NON-PASSIVE"  column?

Again I did check Line 27 on Schedule E "are you reporting any losses not allowed in prior years..."

I am uncertain if I also need to checked Line 28  column (e) "for when a basis computation is required to be attached to the return if you report a loss, receive a distribution, dispose of stock, or receive a loan repayment from an S corporation" since I did adjust the cost basis from the sales schedule but I'm not sure that is applicable to Sch E. However, regardless if line 28e is checked or not it doesn't change how the income and cumulative losses are reported on Sch E
 

Thanks I just wanted certain that Turbotax was entering this currently since in the past I believe it automatically created two separate K-1 worksheets (one for the current years PTP and one for suspended carry over losses PTA) and this year when I imported my prior years turbotax information, the cumulative suspended passive carryover losses were simply on the same worksheet as the new K-1 information.

According to the IRS instructions for Sch E they state that Prior years unallowed losses must be reported separately from current K-1 and designated the former as "PYA" and this information should be entered in line 28 g (passive losses allowed k-1). But I cannot get Turbotax to do this and instead it reports it as nonpassive loss column i.

Also according to Schedule E part II text  "if you report a loss, distribution, or dispose of a stock you MUST check box 'e' on line 28 and attach the required basis computation. " However, I am uncertain what information I need to provide for this section and do I simply include this information as a supplemental statement?

@LaJolla You're asking good questions and digging into the details, but all I can tell you is that I've never made any adjustments to Sched E in the years I've done my own MLPs. The way TT automatically handled it seemed to be correct.  That includes checking off all the right boxes.

• The line you're referring to about checking 28(e) refers to S corps (at least that's what it says on the TT version of the Sched E), so doesn't apply to a MLP.
• I've never had TT create two separate K-1 worksheets for a given MLP.  The worksheet always showed current year entries and carryover entries.
• Whenever suspended losses for an existing MLP (one that I haven't disposed of) are released they show up in 28(g) under a 'PYA' label.
• When the MLP is sold, the losses are released and show up as "Nonpassive", allowing them to offset other non-MLP income.

If you're concerned that there's a bug in the way TT handles K-1s and Sched E, I'd suggest posting the question separately.  You might get a more definitive answer from one of the TT employees.

Thanks I guess I interpreted the Schedule E part II text incorrectly and  had assume that if any of the situations that were referred to in the section applied than you must check box E; however, after re-reading the Sch E instructions you are correct and box 'e' line 28 only applied to S corporations 

"if you report a loss, distribution, dispose of a stock OR received a loan repayment from  an S corporation you MUST check box 'e' on line 28 and attach the required basis computation. "

I'll contact TT to see if they have any idea why the information is not going to the correct are on the Schedule E. If they come up with any usable information I'll report back

thanks

Thank you for this answer. I have 7 K-1s and I’m a lot of different transactions related to these publicly traded partnerships on my 1099-B.

Also almost all of these transaction are showing up under the “cost not reported to IRS section of 1099-B type B” section. Any tips on computing the correct tax basis which then should be substituted for what's on the broker's statement? I have a ton of entries. I knew I felt like I was being taxed twice by having it on the k-1s and 1099-B without adjusting the cost basis. Thank you

@Haydenbyers This thread gets into the detail on how to handle this.  Its been running for several years, so there's lots of different examples and clarifications in the comments:

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/how-i-report-the-sale-of-mlp-shares-in-turbo-tax-i-sold-all-shares/00/776624

Awesome that thread was very helpful. Just a couple quick questions if you have the time I’ve very grateful.. so I completed the k-1 interviews I did not have Ordinary Gain so I put “0” there as I had already report gain in box11c contracts/straddles.. does that sound correct?

need help with this step: “Go the the 1099-B provided by your broker.  There will be a cost they provide, which isn't reported to the IRS.  This can be changed, so change it to whatever provides the correct cap gain/loss (you work out the cap gain/loss by using the K-1 worksheet).”

I have found the 1099-b entries in B section of not reported to IRS. Are you able to break down in detail what exactly to adjust here and what the calculation insists? I have over 3 pages on the sales schedules as I bought and sold a ton. Just trying to figure what numbers I adjust like box 1e or 1g. A link to the a walk through video of adjusting cost basis on 1099-b TT entries would be very heldful as well. Thank you very much for your time