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

[Mike9241]

the broker will report the tax basis as what you originally paid because it does not get the K-1 info to adjust it. that's your responsibility. on the 1099-B the sale should be coded B or E to indicate the "tax basis" was not reported to the IRS by the broker.  upon complete disposition and no wash sale, any losses are allowed in full. both those on the k-1 and any loss on the sale.  a wash sale may be appropriate but that depends on whether you have an actual loss on the sale (this will differ from what the broker is reporting)  and bought the same security in the wash sale period. you should have received a supplemental schedule from the MLP with the K-1 showing your adjusted cost basis to which you must add any 751 recapture reported on that schedule. that's your correct tax basis. so sales price vs this adjusted tax basis is what determines if you have a wash sale or not.

my notes on reporting disposition on MLP/PTP that does not involve a wash sale

Enter the k-1 info

Check the PTP box

If total disposition proceed as follows:

Check final K-1 (s/b marked on actual k-1)

Check sold or otherwise disposed of the entire interest

Use QuickZoom to get to the following section (maybe only available on desktop versions) but in online versions you should eventually get to a screen to enter this info.

On the k-1 disposition section for "sales price" only use the ordinary income (sometimes you’ll see a column with the “751” or the words “Gain subject to recapture as ordinary income”. This info comes from the supplemental sales schedule that should have been provided.

Cost is zero

Ordinary income is the "sales price".

This info flows to form 4797 line 10 and is taxed as ordinary income.

Now for the 8949.

enter the proceeds from the 1099-B. use the tax basis as described above. there is no need to enter an adjustment code. 

Other

 your qbi income /loss is what's reported in 20Z on the k-1. in addition the 751 recapture is QBI income. 

[jigo]

Hi Mike. "sales price vs this adjusted tax basis is what determines if you have a wash sale or no" is a key piece of information for the edification of the community, however I don't believe you are addressing my question. Given a wash sale, how is the disallowed loss, which will almost certainly be different from what the brokerage is reporting, in light of the above statement, tracked and recaptured? As you know, in the case of most securities, one, and usually the broker, would adjust the basis and purchase date of the lot triggering the wash. I'm wondering if I have to inform the K-1 preparer of this.

[nexchap]

@jigo  Wash sales definitely apply.  Since the cost basis of the entire holding is "unified" (i.e., average cost) the disallowed loss affects all your remaining shares, not just the lot that triggered the wash.  Only holding period would be adjusted for the lot that caused the problem.

You should talk to the K-1 preparer to see what their capabilities are, but you should also maintain your own records regardless:

• The K-1 preparer is usually just a vendor to the partnership.  Different preparers have different capabilities.  Some may be able to account for wash sales and track the change in holding period and disallowed losses.  Others may not.
• Even if your K-1 preparer can track it today, you have to prepare for the possibility that the preparer changes in the future.

At a minimum, your broker will be able to accurately track your holding period, and you'll have to keep track of disallowed losses that need to be added into future sales schedules.

[jigo]

Thanks @nexchap. An interesting and related aside, Tax Support Package, at least for DBA and DBC, do not actually interpret "unified" as average cost, rather they track a basis for each lot and sell each lot proportionally when a stake is disposed.

Example:

Lot A: 75 units purchased for 2205, price per unit is 29.40
Lot B: 75 units purchased for 1875, price per unit is 25.00
Lot C: 62 units purchased for 1575, price per unit is 25.40
Average price per unit is 26.67

Now 35 units are sold. Total share is 75+75+62 = 212 units. 35/212 = 16.51% disposition.

13 units from Lot A are sold (75*.1651 = 12.38 -> 13), basis is 29.40*13=382
12 units from Lot B are sold (75*.1651 = 12.38 -> 12), basis is 25.00*12=300
10 units from Lot C are sold (62*.1651 = 10.32 -> 10), basis is 25.40*10=254

Total "purchase price" for the 35 units sold is 382+300+254=936 not 35*26.67=933 as would be expected using average cost.

This information is available only online from Tax Support Package under the "Sales Schedule Breakout".

This leads me to believe the wash only affects the cost basis of a specific lot, but yes, I will call Tax Support Package this coming week.

///

A somewhat related question: I am given a percent long for each sale, though lots sold tracked by the broker and partnership differ, so the situation may arise where the 1099-B list a short transaction and reported to the IRS, but a percent of the sale is actually long (and vice versa). How does one handle this? My initial guess is to adjust the basis for whatever is reported on the 1099-B for this sale to make the gain is 0 and then create new Type C and Type F entries on the 8949 splitting whatever is reported on the sales schedule with the K-1 to match the short/long ratio.

[nexchap]

@jigo When you sell, you'll want to instruct your broker to sell proportionally from all your lots so your lot-by-lot holdings always match your K-1 holdings.  That's the only way to keep records in sync, given that 'unified basis' is going to require your K-1 preparer to always sell proportionally.

If that ship has sailed and you're already badly out of sync, your workaround will get you to the right result.

Also, on your cost basis example, the difference between the 933 and 936 is simply the rounding done in your example.  If fractional shares were used, the 'unified' result and the average cost result would match.

[jigo]

@nexchap, thanks again for your help over the past few days.

BLUF: Fidelity makes it difficult to efficiently file taxes for PTPs.

Resolutions, for the benefit of the community:

A) Fidelity (broker) is reporting basis to the IRS, i.e box A/C is checked instead of B/D.

Fidelity agrees that they should not report basis to the IRS, though may continue to do so. Their "not tax advice" is to indicate that the broker is reporting an incorrect basis and correct it on the 8949.

B) What are Tax Support Package's (K-1 Preparer) capabilities to track wash sales?

Tax Support Package can adjust the purchase date and purchase price of lots. It is up to the partner to calculate the new purchase price and inform the partnership of changes. This will result in correct basis and long/short percentages on the K-1 supplemental sales schedule, though code W disallowed loss is not taken into account and must be tracked by the partner.

That said, Tax Support Package repeated the above three times, ending each with a bit of what I perceived as hesitation. They also told me to contact Fidelity if I believed the basis is wrong, which seems more like a CYA than anything. I feel like I've done my due diligence and plan to correct the date and price with Tax Support Package for the triggering lots.

C) Fidelity is not disposing lots proportionally.

Fidelity does not have automated support for proportional disposal. The trader must specify lots or reassign lots before trade settlement.

D) Fidelity is using actual cost method instead of average cost method.

Fidelity only supports average cost method for mutual funds.

[Mike9241]

i disagree with what has been suggested to report the sale of all MLP shares. your cost and sales price are not the same.

MLP reporting k-1 and 8949

you should have gotten as part of the k-1 package a supplemental schedule from which you can compute your property tax basis and an ordinary income recapture on the sale 

Enter the k-1 info
Check the PTP box
If total disposition and then proceed as follows:
Check final K-1 (s/b marked on actual k-1)
Check sold or otherwise disposed of your entire interest.
Use QuickZoom link (desktop forms mode ) to get to the sale/disposition info section.

On the k-1 disposition section answer the questions such as how you disposed of it and the dates involved. 

For sales price use the ordinary income (sometimes you’ll see a column with the “751” or the words “Gain subject to recapture as ordinary income”. This info comes from the supplemental sales schedule that should have been provided. the same amount is on the k-1 in box 20AB
Cost is zero
Ordinary income is the sales price.
This info flows to form 4797 line 10 and is taxed as ordinary income.

Now for the 8949.
The broker’s form is probably coded as B or E – sales proceeds but not cost basis reported to the IRS. This is because the broker does not track the tax basis. It used what you paid originally which is not correct.

tax basis; this is where different PTPs/MLPs report differently on the supplemental schedule.
Some will provide a column labeled something like "Total adjusted basis for capital gain/loss purposes" that's what you would use as your cost/tax basis. Others aren't that nice. they will have a column labeled "Cost Basis" or "Total adjusted Cost Basis"  to which must be added the section 751 amount 

Some other things. Look at lines 20Z1. That number should be added to the ordinary income above for reporting the 199A (qualified business income from the PTP). You don’t have to enter this but then you lose

out on a tax deduction = 20% of this amount

there is a way to check out your tax basis before the 751 adjustment. look at section L on the k-1 which is reported on the tax basis. Beginning Capital account + capital contributed during the year (should be your cost of shares purchased during the current year) + current year net income or - current year net loss - distributions reported on line 19 of the k-1

[joeg72]

Hello nexchap,

I want to make sure I am following your suggestions.  I sold all of my positions in a k-1 in 2022.  on the sales scheduled there is no ordinary income and the cost basis = purchase price + cumulative adjustments to basis. 

Eg:

Units Sold = xxxx

Sale Date = xxxxx

Purchase Price = 100

Cumulative Adj = 100

Cost Basis = 200

My 1099-B shows 

Cost Basis = 100

Proceeds reported = 200

Gains = 100

I have an entry in box 11 C  assume 100, which does impact my federal tax owed when entered.  If I am following you correctly, when I go through the K-1 prompts I should enter Sale Price as 0 and Partnership Basis as 0 and all other asks as listed on form 1065, is that accurate???  Then on the 1099-B I should adjust my cost basis to 200, correct?

Thank you!

[DianeW777]

Yes.  You will report the sale once with the 1099-B and keep the K1 with your tax file (enter as you indicated for the sales section).   You should use the actual cost basis which includes your cumulative adjustments from the time of ownership.

[joeg72]

Thank you DianeW777,

Just so I am clear - with my numbers above - when I update the 1099-B, the cost basis would go to 200 and the sale would be 200; therefore there would be 0 capital gains for the 1099-B, but the taxes would come from the K-1 entries and from the Current Year Net Income (loss) from box L on the 1065 form.  Correct?

Thanks again!

[HopeS]

I assume you are asking what boxes on your K-1 impact your income tax liability on your Personal return Form 1040.

Schedule K-1s are a federal tax document used to report income from pass-through entities including partnerships, S corporations, estates, trusts and LLCs.

Recipients report the K-1 on their own personal tax returns

 All income/expenses on your  K-1 Part 111 should be entered on your Form 1040 and will flow to Schedule E.

1. Sign in to TurboTaxliability
2. Open or continue your return
3. Select Search, enter K-1, and select Jump to K-1
   1. If the Jump to link doesn’t work, select Federal, then under S-corps, Partnerships, and Trusts, select Wages & Income
   2. Select Revisit or Start next to Schedule K-1
4. Answer Yes to Do you want to review Schedules K-1 or Q? and follow the prompts
5. We’ll ask some questions about your K-1, and then you’ll enter the data from the form

Or click on link below if using TTD

TurboTax CD/Download

@joeg72 

[joeg72]

Thanks Hope, but no that is not what I was asking.  I was just trying to make sure that the cost basis adjustment on the 1099-B was correct which can nearly or will remove any capital gains from the 1099-b. In the scenario I listed the cumulative adjustment would take the sale price vs adjusted cost basis to 0.  The entry of the K-1 information would capture the required tax liability on the 1040 with the Current Year Net Income (loss) from box L in the K-1 (form 1065).  I am just confirming that I am not missing any tax liability. 

Thank you

[DianeW777]

Not exactly. Box L on the Form 1065-K1 is the capital account information.  It does not go to the Form 1040 from the K1 because on the K1 this is just information.

Report the sale of the MLP shares in the investment section and you should use your full cost basis against the sales proceeds on the 1099-B.  If your full cost basis is the ending (or beginning capital account) figure then this would be listed as your cost.  Example:  Initial investment plus any additional investments less any previous return of capital = cost basis of MLP.  Report your investment sale (Form 1099-B) using this link: Where do I report investment sales?

@joeg72 

[jigo]

@nexchap 

How does one adjust the holding period of a lot that triggered a wash sale? My confusion lies with IRS Revenue Ruling 84-53 and the resulting proportional disposal; a sale of units is comprised of proportional units from multiple lots, which of these lots is used adjust the holding period of the triggering lot?

Example:

63 units sold on for a loss on 11/22, of these:
- 22 units were acquired on 6/20
- 22 units were acquired on 7/22
- 19 units were acquired on 8/17

Units were repurchased on 12/23.

How is the holding period for the repurchased units adjusted due to the wash sale?

[nexchap]

@joeg72 Sorry, I just saw this (I wasn't tagged -- you have to use the @ symbol and then a notification goes out).

You're correct: your cost basis on the 1099-B is 200, and your Capital Gain is 0.  However, you will see income of $100 elsewhere on your return from the 11C entry.

As a double-check on the logic, you can always just look at cash in vs cash out, and make sure that you're somehow paying tax on your actual cash profit.  In this case, you paid $100 for the shares (cash out) and got $200 when you sold (cash in).  So you had a profit of $100, and should only be paying tax on that $100 profit.  Because 11C is going to put $100 on your return as income, you would expect your 1099-B to show $0 profit.