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

[JPK13]

I have questions about your response to @naviator2003;s question 3.  I too have Section 199A PTP income in box 20Z and Section 199A PTP Section 751 Income from the gain subject to recapture as ordinary income (i.e., the "Ordinary Gain") from my partial sale of  my MLP holding.  TT appears to handle the box 20Z number (-2513) correctly.  However, the 11,566 ordinary gain from box 20AB and the Sales Schedule does not show up in the QBI calculations.  You told @naviator to put the box 20Z number on the business income/loss line and to put the Ordinary Gain on both the "Other Income" line and the "How Much of the Income Above is Ordinary Income Reported on Form 4797" Line.  I can't find this interview screen.  Please tell me how to find it.

[JPK13]

Ignore my previous post.  I found the interview screen I was looking for.

[nexchap]

@chenxud A positive number in box 1 is unusual for MLPs, but can happen.  Either way, when you get the K-1 strictly for the complete disposition, compare the losses that show up on Sched E to the 'Recapture'.  They probably won't completely offset, but the Sched E will likely take care of a good chunk.

[chenxud]

Thank you! I'll start there. Likely it will take care of everything...

[chenxud]

I just spoke with www.taxpackagesupport.com/et, and they refuse to split the K1 into 2. They also insist the recapture numbers are correct, which is absurd. All the basis adjustment is together -14612. How could recapture be higher than that?

[chenxud]

After talking with a supervisor, the K1 was split into two. However, the recapture hasn't changed. Is there an explanation?

Thanks!

[nexchap]

@chenxud  If you step back and just look at the cash involved -- the amount you received when you sold plus any distributions, less what you spent to buy the shares -- you'll get to the total you made on this investment.  Let's say that's $100k.

Despite all the gyrations that K-1s require -- the new vocabulary, the new forms, the numbers that can't be explained because they're the output of partnership accounting rules -- ultimately you'll find that you're taxed on that $100k gain.  Which is as it should be.  You made $100k.  The IRS wants its slice.

But you have to recognize that you won't see $100k on your tax return.  You'll actually see 3 different numbers, but together they add to $100k*:  1) the 'recapture' on form 4797, 2) the suspended losses on Sched E, and 3) the Cap Gain/Loss on Sched D.  So if the 'recapture' gets bigger, the Cap Gain gets smaller. And vice versa.

I can't tell you whether the 'recapture' is a mistake, but suspect it's unlikely (if its wrong for you, its wrong for every K-1).  But when you look at the 3 pieces together it'll all come back to your actual profit.

* They'll add to $100k, give or take minor stuff that may have been reported already (like interest, dividends, etc)

[chenxud]

Thanks. I agree that three parts adds up to total gain. However, my gains are mostly from price appreciation (price doubled from 3/2020 low), not from distribution lowering my cost basis. The tax rates for those are very different, and I have carried-over loss to use......

[naviator2003]

@nexchap When I adjust the cost basis in the 1099-B, there is a box in TT interview that says "The cost basis is incorrect or missing on my 1099-B". Do I need to check this box, since I'm changing the cost basis from what it is on the 1099-B?

[nexchap]

@naviator2003 Yes.  Checking the box will allow you to enter the correct basis.

[naviator2003]

@nexchap The part of the interview that let's me enter the "correct" cost basis is not appearing if I check said box. However, after some experimentation, I believe I discovered why. This is how I fixed it:

1. Created an entirely new 1099-B entry in Turbotax via "Add investments".

2. Entered the sale information for the items I needed to adjust cost basis (for me, it was three separate line items in my 1099-B; I entered them as three separate items).

3. Checked "The cost basis is incorrect or missing on my 1099-B" for each transaction.

4. Next screen: None of these apply.

5. "We noticed there's an issue with your cost basis..." appears for these transactions.

6. Entered the correct cost basis.

After this, I went back to the original 1099-B that lists the transactions that needed the cost basis corrected, and deleted them, so the transactions aren't listed twice in my return.

I believe this is a bug associated with the autoimport functionality. I used the autoimport to import my investment data (can't remember if I did it via uploading the PDF file, or direct download from my instituation; I believe it was the latter).

[nexchap]

@naviator2003 Odd.  When I go through the interview, there's a screen that says "Tell us about your xxx 1099-B" (I have one from my broker, that includes many individual transactions).  Select "I'll enter one sale at a time".

The next screen, "Any of these less common items..." is left blank.

"no" to sale of employee stock

Then you get to "Select any less common adjustments that apply".  There's an entry for "The cost basis on my statement is incorrect".  Check that box, and a box appears for "Corrected cost basis" where the correct one gets placed.

Regardless of how you get there, in your completed tax return the 8949 should show the transaction with a code "B" in column F, and a 0 in column G.  That's the correct way to show the correction when the broker sends through a 1099-B coded B/E (cost not reported to the IRS).

[jigo]

For DBA and DBC, both PTPs, my 1099-B 1e, cost basis, does not equal the purchase price on my K-1 sales schedule.

Facts:
* 1099-B basis method is actual cost
* 1099-B has box A checked, basis is reported to the IRS
* K-1 Sales Schedule basis method is "unified basis", which I interpret as average cost, consistent with IRS Revenue Ruling 84-53

Conclusion:
The difference in basis between 1099-B and K-1 is due to differing basis methods.

Questions:
* Does this matter? I need to adjust the basis regardless on a 8949; rather than adding the "cumulative adjustment to basis" provided by my K-1 sales schedule, I would correct the basis to whatever the K-1 sales schedule shows. Example: K-1 purchase price = 936, adjustment = 26, basis = 962, 1099-B basis = 1029 -> I should simply adjust the basis on the 8949 down from 1029 to 962.

* Should I call Fidelity, my broker, and ask them to stop reporting basis for these PTPs to the IRS?
* Should I call Fidelity and ask them to covert basis method for these PTPs to average cost?

[nexchap]

@jigo Its definitely worth contacting Fidelity to ask why they're reporting the cost, given that they don't have access to the K-1 and therefore can't calculate it properly.  And since they don't have the K-1, it really doesn't matter if they report using average cost or not:  it will still be wrong.

As for your taxes, you'll correct the cost in TT.  Somewhere in the interview, you'll be able to choose a code stating that the broker reported the wrong cost.

By the way, one reason that the cost they're reporting is different than purchase price is that they may be reducing your cost basis to reflect the distributions you've received.  That's just one piece of the overall adjustments made to basis, but it is the one thing they actually know about so that may be the difference you're seeing.

[jigo]

Thanks @nexchap. I had a reinvestment of a dividend trigger a wash sale for this PTP. This seems like a can of worms. I assume wash sale rules still apply (right?), and It's easy enough to make this adjustment for disallowed loss on the 8949. That said, I'm unclear how this affects basis for this reinvestment lot going forward; do I need to correct the transaction amount with the K-1 preparer to include the disallowed loss, what about correcting the transaction date?