K-1 Cost Basis and Sale

[timoooshy]

I've read that 1099B and K-1 provides two of the identical sales except that K-1 will be missing the sale proceeds and 1099B doesn't have the correct basis.

I plan to remove the line in 1099B sales and simply add in the K-1 section to remove duplicate sale.

Question is do I simply use the 1099B sale price and K-1 Cost basis from Cost Basis (Purchase Price - Cumulative Adjustments To Basis) which is the Form 8949 Column E?

The reason I ask is that the purchase price/initial basis amount is higher than the 1099B which reduces my gains. A little worried about this.

Is this correct? What constitutes the increase in cost basis?

[Mike9241]

I plan to remove the line in 1099B sales and simply add in the K-1 section to remove duplicate sale.

don't do this.  the 1099-B sale proceeds are reported to IRS. Through the k-1, it is coded as proceeds not reported to the IRS. so you would likely get a bill from the IRS showing the proceeds, $0 cost and a bill for the additional taxes.

Question is do I simply use the 1099B sale price and K-1 Cost basis from Cost Basis (Purchase Price - Cumulative Adjustments To Basis) which is the Form 8949 Column E?

The reason I ask is that the purchase price/initial basis amount is higher than the 1099B which reduces my gains. A little worried about this.

Is this correct? What constitutes the increase in cost basis?

assuming what you sold was a publicly traded partnership here's what I suggest

Publicly Traded partnership/Master Limited partnership reporting k-1 and 8949

as part of the K-1 package, you should have received a supplemental sales schedule. please review it since you need it to compute your tax basis

Enter the k-1 info
Check the PTP box
If total disposition procede 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

On the k-1 disposition section for sales price use the ordinary income from the supplemental sales schedule if any is reported (sometimes you’ll see a column with the “751” or the words ”gain subject to recapture as ordinary income”
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.

The correct tax basis is:
What you paid originally, should be the same as what is on 8949,
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.
The result is your corrected cost basis for form 8949.

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 the you lose out on a tax deduction = 20% of this amount.

[timoooshy]

@Mike9241 

I've seen other posts that simply tell users to use one or the other?

From what I'm hearing from you, you're trying to:

1) Add the ordinary gains to the k-1 section in Turbotax with cost basis of 0

2) Provide the capital gains in the normal 1099-B section where we subtract/add by the adjusted basis given in the k-1 form + ordinary gain (so that we don't get double taxed on the ordinary gain)?

Wouldn't it be fine as long as it is in the k-1 form since it will take care of all those (capital gain + ordinary gain)?

Also, in my case, I don't have any ordinary gain for this, so do I simply compute the cost basis by what is given by 1099-B +/- the adjusted basis provided?

What I'm confused is that the K-1 provides a the already adjusted cost basis. What is that used for then? (which is different than 1099-B even before the adjusted one).

Much appreciated!

[nexchap · Accepted solution]

@timoooshy TT's K-1 interview is generic for all sorts of partnerships, and it can produce problematic results when used with PTPs:  1) you eliminate a 1099-B coded B/E and replace it with one coded C/F, changing what the IRS expects; 2) partial sales can result in recognition of passive losses (not allowed) or suspension of capital losses (not allowed); and 3) you can't enter mixed long/short transactions.  That's why, from an advice standpoint, its easier to direct everyone to a methodology that always works:  use the provided 1099-B for Cap Gain/Loss; use the K-1 only for Ord Gain.

As to the actual numbers involved, understand that the broker doesn't see your K-1 (so has no idea what adjustments should be applied to your original purchase) and the partnership doesn't see what your broker provides (so doesn't know what you sold for, and may not even have a good record of what you originally paid).  You're the only one who sees both, so you have to put it together.  Your basis on the 1099-B will always be

[your original purchase price, based on your records (which hopefully match the broker's records)] +

[the adjustments provided on the K-1 sales schedule] +

[any Ord Gain reported on the K-1 sales schedule]