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

[nexchap]

@PSmith1260 I'm wrestling with exactly the same thing and haven't gotten comfortable that I know the answer.  I've gone through a couple of my own MLPs and am also seeing oddities in the carryover.  I don't know if its a bug, or my lack of expertise in the way QBI should work.

I'd suggest posting a separate question, since that will get the attention of more of TT's experts.  Specifically citing the case where you have a 2019 suspended loss that didn't carryover may help folks sort it out.  In the meantime, if I figure anything out I'll let you know.

[sparky8]

Hi, @nexchap , thanks for your post, it helped tremendously! Regarding you comment:

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.

Could you please point me to the publication that explain this part? Why the capital gains/losses must be fully recognized in PTP situation? 

Thanks so much!

[nexchap]

@sparky8 I don't have a specific publication reference handy, but if you want to get deeper into the subject you'd read up on "portfolio income" vs "passive income".  Capital gains/losses that result from you trading stuff in your portfolio is one example of "portfolio income".  The stuff a MLP reports on their K-1 is an example of "passive income".  The issue is that passive losses (e.g., the box 1 loss from MLPs) can only be used to reduce your other income in very specific circumstances, and offsetting portfolio income is not one of them.

[sparky8]

@nexchap Thank you so much!!!! This helps a lot! I just want to make sure and do not want to make any mistakes on the tax return.

[aws316]

I too have some QBI loss carryovers that weren't populating the correct amount. It seems, for me at least, it only carried over the 2019 amounts. So I just added the 2018 amounts to it. I'm wondering if it had to do with section 199a income on the K1 being changed from code 20AD (in 2018) to 20Z (in 2019 and 2020).

One question for @nexchap and the forum that pertains to QBI:

I have 1 MLP that breaks down section 199a income from box 20 code Z into the following: Ordinary Business Income (Loss),  and Section 1231 Gain (Loss). The QBI numbers match what are in boxes 1 and 10 in part 3 of the k1.

However, I have 6 different MLPs that only show section 199A income, which matches box 1, and that's all it shows as far as QBI, even though, they all have section 1231 losses in box 10. 

On the section of TT where it asks about 199a income from Statement A, should the section 1231 losses be considered even if they're not separately listed on the supplemental statement? I've asked Tax package support about this to no avail...

[aws316]

I too have some QBI loss carryovers that weren't populating the correct amount. It seems, for me at least, it only carried over the 2019 amounts. So I just added the 2018 amounts to it. I'm wondering if it had to do with section 199a income on the K1 being changed from code 20AD (in 2018) to 20Z (in 2019 and 2020).

One question for @nexchap and the forum that pertains to QBI:

I have 1 MLP that breaks down section 199a income from box 20 code Z into the following: Ordinary Business Income (Loss),  and Section 1231 Gain (Loss). The QBI numbers match what are in boxes 1 and 10 in part 3 of the k1.

However, I have 6 different MLPs that only show section 199A income, which matches box 1, and that's all it shows as far as QBI, even though, they all have section 1231 losses in box 10. 

On the section of TT where it asks about 199a income from Statement A, should the section 1231 losses be considered even if they're not separately listed on the supplemental statement? I've asked Tax package support about this to no avail.

[nexchap]

@aws316 (also tagging @PSmith1260 since QBI carryovers were in that post too)

I've noticed the same thing re 2018 not getting carried over.  I don't know if it was a problem with 2018 (I recall that there was discussion in the forum about how to trigger even recording it in the interview, let alone having TT handle it), or something in 2019 not carrying it over.  Either way, I haven't been letting TT auto-populate the carry over:  I've gone back to the old K-1s to get the right numbers for 2018 and 2019 whenever this comes up.

As to exactly what the MLPs are reporting with line 20A -- whether it includes or excludes 1231 losses -- I haven't been able to figure it out.  Some definitely don't.  Others might.  My suggestions:

• If a MLP isn't contributing to the deduction this year (just carrying over to next year), then re-examine next year when the MLPs may get more consistent or provide more verbiage to spell it out.
• Since the QBI deduction is income limited (as shown on the QBI Deduction Summary), it may not matter.  If someone is maxing out regardless, then just be conservative.
• If it matters to this year's taxes, you could submit the question directly to the partnership, or consult a CPA, to try and get an answer that could be defended if challenged.

[msg92612]

Hi,

Thanks for getting back to me on the other thread that I started primarily about the apparent pointlessness of the K1 question process sales questions... Can you confirm you do something like:

individual 1099bs for relevant sales

consolidated 8797 for total gain

manually enter -8797 amounts on 8949 G  in the form section?

Is that best practices? I have a variety of mlp losses and gains for 2020 (some very good/some bad) and It's my first year using turbotax...

[nexchap]

@msg92612 If you follow the procedure in this thread, there's no need to make any entries in 4797 (I assume you meant 4797?).

Cap Gain/Loss, as calculated from the Sales Schedule in the K-1, is handled on the 1099-B from the broker.  When you work through this calculation both the adjustments to basis AND the ordinary gain are factored into the cost basis you enter.

Ordinary Gain is entered during the K-1 interview.  Nothing more needs to be done with it.

You shouldn't need to make any entries onto the 8949 col g:  you just change the basis provided by the broker, since it was never reported to the IRS.

[msg92612]

One more question - do you generalize for long term/short term or file one for each transaction?

[nexchap]

@msg92612 The broker's 1099-B will already be split for the cap gain.  Ordinary Gain taxation isn't effected by holding period, so you'd just enter the total on the K-1 interview.

[Willard131313]

I have a stupid question?

I received 2 K1's for a MLP  the issue seems to be My name was slightly different.  Should I just combine these or enter them separately?

[nexchap]

@Willard131313 Unless there's a valid reason to keep them split (e.g., you did a complete disposition in Feb, and then repurchased in July; one is from an IRA while the other is not), they should be combined.  You can also contact the K-1 preparer and try to fix the registration.  They can reissue a single K-1, and you'll avoid this in the future.

[Sait]

@nexchap thanks a lot for all your advices on MLP K1 reporting, super helpful. I have a question wrt Schedule E. I followed your process adjusted the cost basis on 1099 to get the 8949 capital gains right and used the K1 interview only for the ordinary gains. I also had complete dissolution as I sold all shares within the same year. The ordinary loses I have are correctly shown on 4797. However my issue is the the same loses are also shown in Schedule E. Is that normal? Looks like ordinary gain/losses are double counted for 1040. Am I doing something wrong? I haven't seen schedule E mentioned in the forum so far. Thanks!

[nexchap]

@Sait When the partnership generates losses (e.g., a negative number in box 1) you get to deduct those losses from your other income.  But you can't take them immediately.  You only get to take them when that same partnership generates some sort of positive income OR when you sell the partnership completely.  Until that time, they're suspended (and you can see them in TT by looking at the K-1 worksheet).

So on a complete disposition, there are always three moving pieces:  the capital gain/loss, the Ordinary gain, AND the losses that the partnership generated which have been suspended waiting for the sale.  Those losses show up on Sched E.

It would be pretty unusual for those losses to exactly match the Ordinary Gain from the sales schedule, but is mathematically possible.  Typically, they'll be in the same ballpark.

As a check, and to bring tax magic back to the real world, if you figure you're real world profit (cash when you sold, PLUS cash you received as quarterly dividends, MINUS what you paid) it should almost exactly equal what's being taxed (cap gain PLUS 4797 PLUS Sched E).