How to enter sale information for K-1 where I was assigned out of a covered call position

[newbis7]

I was assigned out of a position in a limited partnership through a covered call.  When considering the premium from the call, I had a profit, otherwise considering just the stock itself, it would be a loss. In filling out "Enter Sale Information" for the K-1 portion in TurboTax, there are boxes for "Sale Price" and "Ordinary Gain."  How do I enter these, given that "Ordinary Gain" in column (7) in the K-1 I got doesn't match either way of calculating my actual profit or loss, given that the price of the stock on the day of the sale was different from the strike price of the call?

In other words, should I enter these numbers to match what's on the K-1, or should I enter them based on my actual transaction history? And if the later, do I consider the call premium in calculating "Ordinary Gain"?

[Mike9241 · Accepted solution]

if this was a publicly traded partnership - PTP- (part 1 box D checked) follow these directions. there is no difference in reporting between a direct sale and the call option exercises except that the sales proceeds on the 1099-B includes the call option premium.

you enter the k-1 as shown. in addition, if this was a PTP you use the supplemental sales schedule which was provided to determine your true tax per basis and any 751 gain/ordinary income that needs to be reported on the sale. box 20AB should also report the same number for the ordinary income to be reported.

MLP and PTP reporting k-1 and 8949

Please follow these instructions. Incorrect entries can result in entering the sale twice or otherwise incorrectly. Also see the sales schedule that was included with the k-1

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 entire interest

On the k-1 disposition section 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” or similar wording. This info comes from the supplemental sales schedule that should have been provided. Its also now on the k-1 box 20AB - no 20AB, no ordinary income column then then sales price is zero. The numers I’m using represent the line numbers in forms mode (desktop only)

5. Sales Price = line 20AB (1065 k1)
6. Selling expenses = 0
7. Basis = 0
8. Gain is computed and should be same as the sales price.
9. Ordinary gain = enter same as sales price

This amount flows to form 4797 line 10 and is taxed as ordinary income. This step is necessary, so any suspended passive losses are now allowed.

10,11,12 should be blank

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.

The correct tax basis is:

What you paid originally, should be the same as what is on 1099-B as cost,

Then there is a column on the sales schedule that says cumulative adjustment to basis. If it’s positive add it to the original cost. If it’s negative subtract the amount. 

Finally add the amount of ordinary income reported above, if any.

The result is your corrected cost basis for form 8949.

Some other things. Look at lines 20AB. 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.