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YourCryptoDoctor
Returning Member

K-1 calculating self-employment tax on long-term cap gains incorrectly?

I inherited ownership of a family farm that was created in an LLP partnership over 20 years ago.  This past year the property was sold, and I have long-term capital gains from it.  However, it appears to me the TT is calculating the incorrect tax rate, but I cannot figure out how/why.  Here are the numbers from my K-1:

box 1 ordinary business income: -$394.

box 9a long term capital gains $69,497.

 

My portion of the sold property was 127,956 on an inherited basis of 58,854.

 

After I complete the module for that K-1, I am told my self-employment tax is $28,497, but my understanding is the tax should be 20% of the long-term capital gain, which is only $13,899.  

 

I cannot figure out how TT is coming up with the 41% tax on my gain.

I have looked in 1040 Schedule E and D and I do not see the $69,497 entered twice, as I have found references to double-counting.  However, my tax is actually slightly more than double 20%, since it is 41%.  I cannot find where this error could be.

 

Thanks for your help with this!

 

 

2 Replies
dmertz
Level 15

K-1 calculating self-employment tax on long-term cap gains incorrectly?

TurboTax calculates self-employment tax on the amount reported with code A in box 14 of the Schedule K-1 (Form 1065) and any profit reported on Schedules C or F.  It has nothing to do with the sale of the property or the capital gain.  SE tax of $28,497 implies net profit from self-employment of over $400,000.

YourCryptoDoctor
Returning Member

K-1 calculating self-employment tax on long-term cap gains incorrectly?

I appreciate your reply, @dmertz . This K-1 has nothing in box 14, and I have not entered anything regarding box 14 on TT for this K-1.  I do have a different K-1 which is my primary income, and it does have Box 14.  I also have 2 schedule Cs this year, and as I am diving into the Forms I have found Sch SE-T which appears to be the answer of how TT gets to the $28,497.  It also appears correct to me, looking at it with this knowledge.  Sometimes I think TT does too good a job of keeping users away from the Forms.  Nonetheless, it does seem weird to me that TT only pops up what my SE tax is for the year was when I enter the data for the K-1 without SE income on it, and it didn't pop up my SE tax when I entered the K-1 that DID have SE income on it. 

Anyways, thanks for your help, you definitely helped me solve the problem, and it appears the calculations were all correct when I filed. 

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