Final K1 sale also reported on broker's 1099-B

@zombi12 What contradictory information are you seeing?  You avoid the double taxation by:

• Report your cap gain on your 1099-B.  You do this by adjusting the cost basis.  If you have Ord Gain (Gain subject to recapture) reported on your Sales Schedule, then your basis is 3013+the Ord Gain.  If not, its just 3013
• Report everything else on the K-1.  In the sales section, if you don't have Ord Gain you just enter 0 for sales and 0 for basis.  If you do have Ord Gain, you enter it in the sales section (2 values, one regular and one AMT), 0 for sales, and the inverse of the Ord Gain as basis (e.g. if Ord Gain was 100 and 94, you'd enter -100 and -94).

So, I should not delete 1099-B entry? Some answers say enter everything from K1 sale and delete the entry on 1099-B. 

In this case, you suggest I adjust the cost basic in 1099-B to 3013 (since cost basic in 1099-b not reported to IRS?) and put zero  in all K1 sale interview in turbotax below?

@zombi12 Do not delete the 1099-B -- just change the cost.  Use all 0 on the screen you displayed.  There are certain cases when deleting the 1099-B can work, but there are many others where bugs in TT will give incorrect tax results.  Best practice is to follow the rules I outlines above.

@nexchap  Thanks! One more question, aside from final sale info, I also have the regular K1 info that I received and filed every year. Should I enter these info as well? or any different calculations for final K1 that I need to adjust? 

You enter the K-1 as normal.

Thank a bunch!

you sold a publicly traded partnership. the broker does not track your tax basis so the cost on the 1099-B is wrong. with the k-1 you got a supplementary sales worksheet that shows your correct tax basis or provides amounts to compute it and your correct capital gain. you can not report the capital gain/loss portion through the k-1. that's because it will be coded as proceeds not reported to the IRS so when the IRS compares the proceeds reported by the broker to the proceeds you show were reported by the broker there will be a mismatch. 

i don't know if there is a column that shows ordinary income on that sales schedule.

if there is you report only that through the k-1 sale info  that's the sales price and the ordinary income which will flow to form 4797

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so for the 8949 because the cost basis was not reported to the IRS just change it to what you compute using the sales worksheet. if there is ordinary income reported ina separate column that get's dd to your tax basis. read the columns carefully.  some do all the math for you others do not and you don't what to be reporting the wrong capital gain /loss

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complete summary of how to do this

MLP and PTP reporting k-1 and 8949

Please follow these instructions. Incorrect entries can result in entering the sale twice or otherwise incorrectly. Also see the sales schedule that was included with the k-1

Enter the k-1 info
Check the PTP box
If total disposition proceed as follows:
Check final K-1 (s/b marked on actual k-1)
Check sold or otherwise disposed of entire interest

On the k-1 disposition section for sales price use the ordinary income (sometimes you’ll see a column with the “751” or the words “Gain subject to recapture as ordinary income”. This info comes from the supplemental sales schedule that should have been provided. Its also now on the k-1 box 20AB - no 20AB then this sales price is zero
Cost is zero
Ordinary income is the sales price.
This info flows to form 4797 line 10 and is taxed as ordinary income. This step is necessary so any suspended passive losses are now allowed

Now for the 8949.
The broker’s form is probably coded as B or E – sales proceeds but not cost basis reported to the IRS. This is because the broker does not track the tax basis. It used what you paid originally which is not correct.

The correct tax basis is:
What you paid originally, should be the same as what is on 1099-B as cost,
Then there is a column on the sales schedule that says "cumulative adjustment to basis". If it’s positive add it to the original cost. If it’s negative subtract the amount.
Finally add the amount of ordinary income reported above, if any.
The result is your corrected cost basis for form 8949.

Some other things. Look at lines 20AB. That number should be added to the ordinary income above for reporting the 199A (qualified business income from the PTP). You don’t have to enter this but then you lose out on a tax deduction = 20% of this amount.

@Mike9241 

@nexchap 

Thank all. I followed the advices and adjust the cost basic in 1099-B and blank out all Turbotax interview columns for K1 sale(image above).

My K1 sale does not have anything about ordinary income. There is $4 in K1 line 20 A (investment income) which I already entered as part of K1 info( image above). Should I worry about that?

Here is my K1 sale page

@zombi12 Not all PTPs report Ord Income.  Nothing to worry about.

Thank you very much for teh very informative instructions.

I am following this to report my complete disposition of MMP units. On the final K-1 sale schedule, I got $3804 for "GAIN SUBJECT TO RECAPTURE AS ORDINARY INCOME" on column 7. I also see line 20AB of $3804 and I entered it as part of K-1. I followed the procedures advised here to report the adjusted cap gain and ordinary income. Everything seems all correct, except the $3804 ordinary income does not show up as QBI in Form 8995  (only $28 which is in box-1 and line 20V shows up in form 8995). In the K-1 sale schedule explanation, it also says the column 7 (ordinary income) is "considered qualified PTP income for 199A". Wondering if I miss something. BTW I did not find the interview question about Final K-1, and not sure that has any impact. Appreciate the comment/help here.  

@rona11 Final K-1 won't show up as a question, but if you check "This partnership ended" and then "complete disposition" it will get checked off.  You can verify this by looking at the Form itself.

On QBI, TT doesn't do anything with the 20AB info automatically.  When you get to the section of the interview that asks about 199A income, you'll enter that info again (actually twice):  you'd put the Ord Income on the "Other Income (loss)" line, and then again on the "Total ordinary Form 4797 gain(loss) included above" line.

@nexchap Thank you so much for the instructions. It really works! Now I can see the QBI showing up on Form 8995. I attached a screenshot of what I did. Just to make sure I did the right thing.

May I ask one more question: as part of the sale schedule (about the ordinary income), my K-1 says "... Lastly, attach an IRC Section 751 Statement to your return showing the date, the amount in Column 7, and the capital gain or loss for each sale". I am wondering if TT will support the generation of such a statement? if not any place I can find a sample/template I can use?  

Thank you very much, once again

@rona11 The data entry looks fine.  For the IRC statement, all TT provides is a "Blank Form" in forms mode.  You can use that to enter the statement, but it doesn't get used for efiling:  you;'ll have to mail your return in.

@nexchap @Mike9241 I just realized one more issue and would appreciate your input: I hold the PTP units (in this case MMP) between (Jan 2022 - May 2023), during the period I received quarterly distributions of  $2401 in total, which matches the 2022 K-1 (box 19A: $1560) and 2023 K-1 (box 19A $840). However in the final K-1 sale schedule, I was told to report $3804 of recaptured ord. income. There is quite a gap between these numbers ($2400 received vs $3804 to report as ord. income). I know K-1 numbers are not always following the actual distributions, but is it normal/reasonable to have a such big discrepancy? (BTW, cost base adjustment in the sales schedule if $3380, in case it's relevant)

@nexchap Thank you so much for the quick feedback. So I can just write a word document for such statement, and print/mail out? ( I see no benefit from using TT's blank form). Thank you.

@rona11 A word document will work as well as the TT blank form.  The only advantage to TT is that it would be embedded in your return, rather than in a separate file.  Do whatever works.

On your other question, the Recaptured Ord Income has nothing to do with your distributions.  When you sold, you had some sort of profit (or loss, but I'll use profit for simplicity).  Say that was $4000.  With a normal stock, that $4000 would all be subject to Capital Gain tax rates.  But with a partnership, that $4000 is split into 2 pieces:  one piece that's taxed as a Cap Gain, and one piece that's taxed as Ordinary Income.  So in your case, $3804 is going to show up on Form 4797, and your Cap Gain would only be $196.  

Really appreciate your inputs!

On the split of "profit", I kind of understand it now. However, just being curious - assuming the unit market price stays flat between my buy and sell, I guess the K-1 sale schedule numbers (cost base adjustment and ordinary income recapture) will be the same (which I believe are irrelevant to the unit market price).  That will imply that although I received only $2400 distribution, I will need to report $3800 income and pay the associated tax? In another word, investing in MLP (or PTP) bears a lot of uncertainty of tax liability. Not sure if my understanding is correct. (in my actual case due to the appreciation of the unit price, I am doing ok)      

@rona11 Assuming you sell at exactly the same price you bought:

- Your distributions will lower your basis, so you'll report capital gain on that amount, effectively turning dividends into cap gains.  The recapture has nothing to do with those.

- You'll typically have losses reported in box 1.  Those losses are suspended until you sell, but when you do they'll show up on Sched E and lower your Ordinary Income / Wages.  They also lower your basis.  So $100 in losses gives you $100 in Cap Gains profit, and $100 in Ord Income losses:  a tax arbitrage that works to your advantage.

- Without getting deep into the detail, good tax lawyers figured out that you could play with those box 1 "losses" to take advantage of that arbitrage.  So at time of sale, the IRS requires special handling to determine how much of that basis write-down you're doing should really get Cap Gain treatment, and how much is stuff that ought to be at the same rates your Sched E deductions are getting.  That's the 'Recapture' (depreciation is one of the big items that is in play here).  So recapture gets compared to whatever suspended losses you have, and gives you a sense of whether the partnership was actually losing money each year, or was just creating losses.

In the end, you wind up with Sched E losses and Form 4797 gains that are both taxed at Ord Rates, and 1099-B Cap Gains/Losses that get Cap Gain treatment.

@nexchap aha, you are really helping me to get a better understanding of MLP investment. I had a loss (K-1 box-1) of $1006 from last year and now the loss is unlocked showing in schedule E, so all together they are more reasonable numbers to me.

One more thing about QBI: I just got another K-1 from another MLP (EPD), which I have a large position, showing big loss in K-1 box-1 (about -$10K). I just found out the $3804 QBI realized by MMP sale is offset by the QBI (loss0 from EPD, and the total is a negative QBI, and I do not have any QBI deduction on Form 8995. Is this correct? I thought PTP (incl MLP) losses cannot offset other passive gain (until sell), but seems QBI loss can offset other QBI in the same year? Thank you once again!

Yes, since the combined QBI's offset each other, there is no QBI for this year and is not reported on 8995.

Thanks Dave! You confirmed my observation. 

@nexchap When I am thinking about the gain "split" as you indicated, I'd like to confirm (again) that the split is achieved in the following two steps:

(1) the recaptured gain is generated via K-1 sales interview (as discussed in previous messages), flow into 4797

(2) the capital gain is still reported via 1099-B: cost basis = adjusted basis (from K1 sale) + recapture gain (K1 sale), then flow into 8949. This step basically reduced the cap gain by the recapture gain amount.

Please kindly let me know if my understanding is correct. Again appreciate your inputs very much.

@rona11 You've got it right.

I read all your response to others and learn a lot from TT experts 

@Mike9241 

@nexchap 

Could you help me to related others question ? 

Given infor 

1099B sale Energy code B 200k cost 150 k

1099 B sale Energy code E ( not report basic to irs) 150 k cost 100k 

K1 final from Energy Partnership PTP 

I cited out code and box  for computing cost basic as you mentioned ( I input all info in K1) 

Beg capital $200 k

 Contributed capital during the year $40k 

current net income $2k 

withdrawal distribution $238 k

box 19 A distribution $20k 

box 20A $2k ,20 N $8k and 20V $3k 

Sale schedule has  info 

Cummulative $-51 k 

Average cost basic $248 k 

Gain subject to recapture as ordinary income $61 k 

Please help

Q1 Adjsuted cost basic for 1099 code B ? 

( I think either makes sense to me) 

Option 1: beg capital + capital contributed in the year = $200k+ 40 k =$240 k

How to split cost code B and code E ? 
can I use this option? 

Option 2: Average cost basic $248 k ( sale schedule put reference form 8949 column E) 

Should I split code B and E 1099 b?

Option 3: as you advised us 

cost original on 1099 b 150kplus cummulative 

Adjustment to basic -51 k and add ordinary income 61 k=160 k 

we ignore to adjust basic cost as original code E 1099 B , correct? 

Which option is correct one ? Compliance guideline of irs ? 

Q2 

I like your advise to match number with irs record 

Because I use Proseries : I put dispose complete 

sale 0 cost 0 as tax software instructed 

then I put ordinary gain $61 k , it flows out to form 4797 part II line 10 $61 k 

and 61k capital Loss on sche D short term ( sale 0) 

thus 1099B no add ordinary income 61 k code b 1099B 

please advise me using  above or below 

should I put sale price $61 k ( 

or should I go direct 4797 input ordinary gain / gain subject to recapture $61 k 

and adjust basic cost on 1099 B code B ( irs does not have record sale $0 and loss $61k ) 

As you said we want the number sale proceeds match with irs record 

Your response would be appreciated . Specially in tax seasoning