K-1 gains excessive Section A net income vs real gain

[taxdoer111]

I received a final K-1 on a multi-family real estate property that i invested 40K in 2018 and received 42k in 2022. My total gain is $2000. Limited partner(passive investor)

I have the final K-1.

Section L:

The begining capital account is -20,431

Current year net income 62,431

Withdrawal and distributions 42000

Ending capital account is 0. 

Box2. 7642 (net real estate income)

Box9c: 8461 (uncaptured section 1250 gain)

Box 10: 54789 (net section 1231 gain)

Box 19 A: Distributions 42000

Box 20: has N, Z, AG, AH

I have suspended losses carry over of -48,714. I entered sale price as 42k and partnership basis as initial investment of 40K.

When I enter this information in TT and review SECTIONA: line 9

it appears that my net income is column a(7462+2000+54789)=64251 - 4871(col b) = 15537(net income allowed). When i review 1040, looks like I am ending up paying tax on 15537 and not 2000 I received as gain. I did not received any distributions for the property. Should i adjust my basis so 15537 is reduced to 2000?

Can somebody please help me resolve this?

[Mike9241]

I'll short cut it by assuming there was sufficient debt at beginning of year to cover capital account deficit and at the end of the year it was 0 Part II item K

so basis is

-20431 per the tax rules schedule L beginning capital is supposed to be your tax basis before taking qualify debt into account. prior year income/loses and distributions change your tax basis from what you originally paid so $40K is no longer valid

+62431 net income

= basis before distribution or $42000

for which you got $42000 so there is no gain or loss

in the sales section you can enter sales price as $42000 the distribution you got and your tax basis before the distribution of $42000 so no gain or loss 

you must enter final k-1/total disposition  and sales info above to free up those suspended losses. 

**************

net income reported on 1040

 +7642 current year

-48714 prior year suspended losses freed up due to disposition 

= net ordinary loss of -41072 non passive should be on schedule E page 2

1231 capital gain 54789 should be on schedule D  line 11

net 13717

you 15537

less2000 capital gain that does not exist

remainder 13537

transposition error 7642-7462+180

13537+180=13717

******************

you are contradicting yourself

received 42k in 2022

I did not received any distributions for the property -

[taxdoer111]

Thank you very much for the reply.

I meant I did not received any other distributions in other years. Only the 42k on 40k original investment.

Sorry for the transposition error.

You are right there was debt at the begining.

They also have me this partner basis worksheet that I cannot figure out how to use.

[taxdoer111]

I also have this info

[taxdoer111]

This is what i did. I enterted Basis as 77368 (liabilities +begining capital account) and sales prices as 62431(box2+box10 income). This gave me long term loss of -14937 . When combined with passive loss carryover this gave net income of -1220 loss( i was expecting this to be $2000). Is this the right way?

[Mike9241]

the k-1 showed 7642 in one place you changed it to 7462.   that's what's referred to as transposition error

when 2 digits next to each other are switched. the error is always divisible by 9

for examples 6742 vs 7642 difference 900

or 7624 vs 7642 difference 18

as reported in another response the k-1 basis worksheet confirms what was in my original post  tax basis 42k for which you received 42k so no gain or loss

[taxdoer111]

Thanks Mike.

If i enter 42k as sale and basis price, i am having a netincome of around 13717 in column c in section A. Which seems to increase my taxes?

So i entered 77368 as my basis and 62431 as my sale price, which ended up my loss being -1220(still not $2000). Can you help me fix this?

The 13717 seems to be increasing my taxes. 

[Mike9241]

see a  tax pro. perhaps they can explain it better than I can. 

[taxdoer111]

thanks Mike. I will check with them.