How I report the sale of MLP shares in Turbo Tax. I sold all shares.

[nexchap]

If all your shares were held long term, or short term, then you can just follow the prompts in the K-1 interview section.  It will put everything in the right place, AND it will create a 1099-B for the cap gain/loss portion of the sale.  I emphasize the "AND" because this is a problem if you also imported the 1099-B from your broker for this sale.  In that case, you'd either want to delete the imported 1099-B, or set the cost equal to the proceeds so that there's no double-counting of gains.

However, if you happen to have both short and long term gains, you can't do this.  And for the sake of completeness, if you happen to ever do this again with a partial sale, you also can't use the interview.  Below is a longer answer that covers both those cases too.

MLP sales are a problem area for TT that they haven't addressed for years.  There are a number of sale scenarios that must be dealt with:

1) Partial sales:  In these cases, the capital gains/losses must be fully recognized.  However, if you enter them during the K-1 interview they're treated as passive and suspended (for cap losses) or used to release past years suspended losses (for cap gains).  Neither is correct.

2) Mixed short/long sales:  The K-1 interview only allows one holding period.  There's no way to split between long and short term gains/losses

3) Complete dispositions, all in one holding period:  This is the only case where the K-1 interview works, but you still have to deal with the 1099-B that came in from the broker.

Because of all this, I handle all scenarios the same way:

1. Use the K-1 interview for the 'ordinary gain' portion of the MLP sale, but not the capital gain/loss.  Do this by: 1) enter 0 for sales proceeds, 2) enter the ordinary gain numbers provided on the K-1.  Note that there will be two ordinary gain numbers, one for Regular and one for AMT, and 3) set your basis as the inverse of the ordinary gain (for example, if ordinary gain was 100 (regular) and 90 (AMT), set basis as -100 (regular) and -90 (AMT).  Doing this puts the ordinary gain into all the right spots on your tax return, but sets the capital gain/loss as $0 for both Regular and AMT.
   
2. 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).

This two step process handles all the scenarios above.  Its unfortunate that TT doesn't provide an interview-based way to do this, because I'm sure many people don't notice the problems they're creating in their returns when they follow the existing interview.  But until they do, this will work.

[ngl0ml]

When you say "2) enter the ordinary gain numbers provided on the K-1" do you mean the number in box 1 that says "Ordinary business income (loss)" e.g.: -9 or the number mentioned in the section "Ordinary Gain" e.g.: 16 of heading "Gain or Loss Classification"  in "Sales Schedule" document

[nexchap]

@ngl0ml I was referring to the numbers reported on the Sales Schedule

[LawnMower]

I did what nexchap suggested for OKS which I fully sold in 2016. My problem is that I accumulated disallowed ordinary loss a lot. I thought that all the accumulated ordinary loss would be allowed for 2016, but PTP worksheet shows this will be carried over to 2017. Please help me what I can rectify the situation.

[LawnMower]

As for the above issue, what I am thinking to do is, to override PTP worksheet and move the amount in Item 3 (Unallowed losses, carried over to 2017) to Item 2 (Total loss allowed for 2016). Then I will also override schedule E, Item 28, to report the allowed loss.  I just would like to make sure if this is legal.

[nexchap]

You shouldn't need to override anything.  In the interview, there's a spot where you can check off "This partnership ended in 2016" (its on the 'Describe the Partnership' screen).  Doing that causes the "Final K-1" box to be checked for the K-1, and all suspended losses are released.

[LawnMower]

Thank you very much, nexchap. It worked very well. My only complaint for TurboTax is that the wording "This partnership ended in 2016." was confusing. I wish it included the wording, "or the partnership was sold fully" or something like that. Anyway, I will not be afraid of another MLP sales in the future. Thanks again.

[Allencar]

Thanks nexchap but your methods needs a slight adjustment when the MLP (PTP) has been held long enough for the Adjusted basis becomes negative.  TurboTax wont allow a negative value for line 7a "Cost or other basis".  

Enter the actual sales data into the 1099-B Wks and then from the received K-1 from the MLP enter the Column 5 "Cumulative Adjustment to Basis" into line 7 of the K1P Addl Info.  I added Supporting Details for the line to explain what I did.  You can enter it into the Interview but you will still need to go the the form to add the Supporting Info.

[nexchap]

@Allencar -- Thanks for the suggestion.  I'll factor this into future posts (assuming TT never fixes there MLP interview).  But to make sure I get it right:  1) can you provide some numbers to illustrate how you wind up needing to enter a negative cost basis on the 1099-B and 2) was this a situation where you're capital account has gone negative, or your basis has dropped to 0 (so that past losses should have been limited)?

[nexchap]

@Allencar -- In thinking about it further, isn't this only possible if you have an allocation for non-recourse loans from the MLP and your capital account has gone negative?  This would mean you still have basis (so when you sell, your 'Adjustments to Basis' would exceed your 'Purchase Amount'), but it would also mean that investment is no longer "at risk".  Not being "at risk" any longer means form 6198 is in play, and in that situation there are additional rules for increasing your proceeds (beyond the cash you received) to account for being in this unusual situation.  Bottom-line:  I'm not sure exactly how to tweak TT to handle this, but suspect its a lot more complicated than what you listed above.

[delphisuzanne]

Thank you for your posting Nexchap. It is a PTP final K1 with only a long term loss . As you said the K1 interview should help. I Have to delete entries regarding the sale of the shares in 1099 B to avoid doubling on capital loss. K1 is showing adjustments reducing cost basis in supplemental sheet and also h an ordinary gain to be recorded 0n form 4797, which create for me a taxable event (unfavorable !) ,but I guess there is no way to avoid it ? Anyway thank you very much for your answer and comments.Very helpful

[nexchap]

@delphisuzanne -- you're welcome.  On the tax impact, keep in mind that your total bill for the sale will show up in 3 places:  the 1099-B (cap gain/loss), 4797 (ord gain), and Sched E, where TT will have released any passive losses you've been building up from the partnership.  Typically the losses flowing to Sched E mostly or entirely offset the Ord Gain on 4797.

[ssmith2]

This is off topic, but I'm hoping someone can help with this question re: Partial sale of MLP holdings. We sold 900 units of an MLP and asked the broker to make sure the Lot sold was the most recently purchased (6 yrs. ago). He did this, and the brokerage statement documents the acquisition date correctly for the sold Lot. The K-1 came through and the 900 shares listed on the sale schedule is for 3 Lots of 300 each that were purchased over 16 yrs. ago because they use the FIFO method. The K-1 indicates that it is done using FIFO as an administrative convenience, and to let them know if the schedule of sales is not correct.  Is it really possible to have the MLP redo the K-1 with the proper units sold? Even if they will, I don't know if it will have much of an effect but it appears that the Ordinary Gain per the current K-1 is going to be substantial on this sale. Am I right in assuming the gain would be less for units held for a much shorter period of time? I am trying to determine if this is the case so I will know if it is worth it to try to have the K-1 restated.

[nexchap]

@ssmith:  The K-1 will list a phone number to call to make a change.  And yes, they will reissue the K-1 and sales schedule to reflect the actual units you sold (and the changes in Ord Gain could be significant).  Its generally a very fast process.