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

[rona11]

@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.

[nexchap]

@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.  

[rona11]

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)      

[nexchap]

@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.

[rona11]

@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!

[DaveF1006]

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

[rona11]

Thanks Dave! You confirmed my observation. 

[rona11]

@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.

[nexchap]

@rona11 You've got it right.

[Lucky2019]

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 

[PatriciaV]

Because you are requesting specific help for the sale of a PTP/MLP, you may wish to consult this TurboTax article, which provides step-by-step instructions on how to record this transaction accurately. See How do I report the sale of Publicly Traded Partnerships (PTPs) or Master Limited Partnerships (MLPs...

If you would rather work directly with a TurboTax Live Expert, consider upgrading to TurboTax Live. This online service provides step-by-step guidance from a tax expert whenever you need assistance, either over the phone or by screensharing.

@Lucky2019 

[Lucky2019]

Patricia 

That would help me lot 

By the way, may I ask 

I google and file TT expert and TT community forum are really good

I used to use TT and had account about 10 yrs 

Then I opened the small business and must use Proseries 6 yrs now and have Intuit account (per Proseries recently has not responded quick or changed)

You mentioned TT live expert for help in case 

Please guide me

How could I be member and tax benefit? 

[PatriciaV]

To sign up for TurboTax Live, follow the instructions here: How do I get TurboTax Live?