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

[DNAmap]

@nexchap The K-1 Sales Breakout Information turned out to be correct. The first entries were split differently than the broker indicated, but added up to correct amounts. The 1099-B numbers appear to be corrected for distributions. So I will use the K-1 Initial Basis Amt and recalculate Total Gain, Cap Gain, LT Basis and ST Basis. Thanks for your help.

[nexchap]

@DNAmap Good!  Glad you were able to get the numbers to tie out.

[DNAmap]

@nexchap I was going back over the comments before submitting my taxes. I came across this statement
"- Your basis is your [purchase cost] + [adjustment to basis]. And your TOTAL gain is your [selling revenue] - [your basis]. But that TOTAL gain is split between Ordinary Gain and Capital Gain/Loss. So the Ordinary Gain goes into the K-1, and the Capital Gain/Loss goes into the 1099-B. But to avoid double-counting the Ordinary Gain, the "adjusted basis" you enter on the 1099-B must be adjusted to take the Ordinary Gain out. So that's why the Ordinary Gain is added to the basis, ensuring that what goes on the 1099-B is correct."

The last 2 sentences I found confusing about avoiding double counting the Ordinary Gain by adjusting the "adjusted basis" so I wanted to check my work with you.
For my total sale in 2020 containing ST and LT gains:
     Total Gain = Sale Proceeds - (Purchase Price + Cumulative Adjustment to Basis)
     Capital Gain = Total Gain - Ordinary Gain
     Cost Basis = Sale Proceeds - Capital Gain

     Cost Basis is split into LT Basis and ST Basis using % long term given in K-1 Sales Schedule

At this point, I went into the 1099-B worksheet and adjusted the LT Basis and ST Basis by choosing one sale from each category and changing the cost basis by an amount that gives the wanted total LT cost basis and wanted ST cost basis and therefore gives the right Capital Gain. I assume that there is no additional corrections needed for Ordinary Gain because it was subtracted to calculate the Capital Gain.

[nexchap]

@DNAmap You've got it right.  The confusion comes from all the ways 'basis' gets used in these discussions:  there's the basis used for calculating total gain, and then the basis entered onto the 1099-B after dealing with Ordinary Gain.  But the way you've written it up is correct.

[navycrab1]

Yes. Double accounted. Is the gain from the sale of an MLP unit income Schd. 1 or a capital gain on Schd. 1

The TT program is putting it in both places. Therefor counted twice.

[nexchap]

@navycrab1 On a sale, there's Capital Gain on 1099-B / Form 8949 / Sched D, Ordinary Income on Form 4797 which flows to Sched 1 line 4, and Sched E losses which flow to Sched 1 line 5.

If you're following the method in this post, none of those will be double-counted.  If you're allowing the K-1 interview to calculate the Cap Gain and create its own 1099-B, then you have to deal with the one you got from the broker.

[MJ2499]

Greetings, 

Being new to MLP stuff, I really appreciate your help. I've got MMP and EPD, relatively small positions, and the K1 state section shows a combined 40 states between the two, every single one with either "0" or a loss in box 1 (Ordinary Business Income or Loss). I know every state is different as to who has to file, and I'm okay with that. But let's assume even if I have a loss I want to file. The EPD instructions are pretty good for the state portion. So I paid the $45 for one of the states in TurboTax. But guess what, it's not at all helpful - essentially wants me to do the calculation myself. When I open a state Non-Resident return in TurboTax, in the intereview there is a state "Income Allocation" section, it simply asks me to list what amount of each of the major categories from my Federal return are attributable to that state. So for me, the only thing that is attributable to that state is the MLP income. And that goes in the interview category for "Rentals, Royalties, Partnerships, S Corps, Trusts, Etc." So I was hoping you might know what the correct amount for each state is to list. Specifically, if EPD's state information shows in that state's box 1 an ordinary loss of $41, and a Bonus Adjustment of $25 in box 2, does that mean I put a $16 loss down for that state? OR, do I use the Box 5 (Gross Receipts) which is $82. Seems to me that the state is looking for what % of my income came from their state's sources. In this regard, it seems that gross receipts (Box 5) is irrelevant. What they really want its income (or loss) and that must exclude federal bonus depreciation for non-conforming states. Would love to have your thoughts.

[nexchap]

@MJ2499 Sorry, but I don't know enough to help with specific state questions:  the adjustments to the Fed K-1 vary, the state rules for reporting the information vary, TT's level of automation in populating the state forms vary, and the ways to mess things up vary.  I'm just not familiar enough with the details to offer anything useful. 

I can offer that Gross Receipts is generally not relevant unless you need to deal with UBTI.  The handling of bonus depreciation is to add the adjustment to whatever Fed number is transferred to the state, so in your example that non-conforming state would see -16 instead of -41.  Its also worth noting that these Bonus Depr adjustments typically result in offsetting adjustments in Ordinary Income when you sell.  I mention that only because it may be relevant when you have to work out how much Ordinary Income to report in a given state (depending on what the K-1 provides).   

[clk3]

@nexchap , you're help has been awesome, and just wanted to acknowledge. I have a disposition question that I'm 99% sure on, but figured worth asking you/others just in case.  With regards to the normal recapture of ordinary income on sale, you're explanation has been very clear and helpful at the federal level. That said, would that ordinary income recapture also flow through as AGI at the State tax level even if the partnership does not operate in that state (in my case, NY)? Or, does it generically flow through the same way any other investment income would (eg dividends)? I'm assuming the latter, but obviously don't want to pay state taxes if not required... Any thoughts appreciated

[nexchap]

@clk3

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@clk3 wrote:

would that ordinary income recapture also flow through as AGI at the State tax level even if the partnership does not operate in that state (in my case, NY)? Or, does it generically flow through the same way any other investment income would (eg dividends)?

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I'm not sure I understand the difference between those two.  In general, whatever you report at the Fed level is the starting point for your state return.  At that point, the state may have its own adjustments (e.g. the handling of bonus depreciation, that can change both the passive losses recognized in the state as well as the Ordinary Income).  In addition, if you have to report some of your partnership income in other, non-resident states you may also be able to get that credited on your resident return.  Hope that helps.  

[EclecticEd]

My brokerage 1099B from Schwab has a section which says:

"SHORT-TERM TRANSACTIONS FOR WHICH BASIS IS REPORTED TO THE IRS - Report on Form 8949, Part I, with Box A checked."

Just for round numbers call it $20K purchase and sold one week later for $25K.

So call it about $5K in gains for USO bought and sold within 2020 which is indicated here.  When I import my 1099B, I get a certain estimated tax total.

If I then enter the information in the K1 section. The estimated tax increase ~$2250.

Would this indicate that I am 

The questions:

Sale Price: are you suggesting to make this $0

Selling Expense: I assume this is $0

Partnership Basis: Should this be the original column 4 $20K Initial Basis or the column 6 Cost Basis

Ordinary Gain: you suggest making this $-5K? 

1250 Gain: I assume this is $0

First question: If the taxes go up ~2250 after entering the K1 questions does that mean it is double counting the gains?

[nexchap]

@EclecticEd If you found your way to this thread, you know my approach is to not let the K-1 generate its own 1099-B.  You already have one from the broker.  So on the selling interview, everything would be 0 (I suspect you don't have any Ordinary Income/Gain -- its specifically called out as 'Ordinary Income' on the Sales Schedule, typically Col 7).

Then you have to fix the 1099-B.  Your cost basis is not $20,000.  That was your purchase price.  But the K-1 reports Cumulative Adjustments to Basis, which need to be added to the $20k.  Let's say that's $2000.  Then your new cost basis is $22,000.  That's what goes on the 1099-B.

Since Schwab reported the $20,000 to the IRS, there's a spot in the interview (or in forms) where you can check a box stating that "Broker reported an incorrect cost" (or words to that effect).  Do that, TT will ask you for the correct basis, and then fixes the return.

In the end, you should still be paying tax on about $5000 in profit.  Its just that some of that profit is reported on the Schwab 1099-B, and the rest of it is from items included on your K-1.

[EclecticEd]

Thank you. That worked.

I will see if I can find the thread for how to not have the K-1 generate its own 1099-B to avoid in the future. 

[Rone3]

in example above if Cumulative Adjustments to Basis is a  negative number (-100) and purchase price was $10,000, would basis be $9,900?

thanks 

[nexchap]

@Rone3 Yes.  Basis can go up or down depending on whether the partnership is allocating gains or losses.