K-1 results in double tax at 70%. Can that be right?

[Checkers2]

I'll simplify with round numbers.  I bought AGQ stock in June 2020 for $6000 and sold it 2 months later for $13000.  The transaction appears on my brokerage 1099 and results in 26% federal tax and 10% Minnesota tax which sounds reasonable.   Then I receive a K-1 for the stock,enter the data into TT, and the resulting tax essentially doubles so that I owe federal tax of 51% and MN tax of 20%, for a grand total of 70% tax.  Can this possibly be correct or does it seem like I screwed up entering data? 

[nexchap]

Its very easy to wind up with duplicate 1099-Bs when entering a K-1.  Here's a thread aimed at entering MLPs (which, because of Ordinary Income on sale, can be more complex) that should help:

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/how-i-report-the-sale...

[Mike9241]

I'll simplify with round numbers.  I bought AGQ stock in June 2020 for $6000 and sold it 2 months later for $13000.  The transaction appears on my brokerage 1099 and results in 26% federal tax and 10% Minnesota tax which sounds reasonable.   Then I receive a K-1 for the stock,enter the data into TT, and the resulting tax essentially doubles so that I owe federal tax of 51% and MN tax of 20%, for a grand total of 70% tax.  Can this possibly be correct or does it seem like I screwed up entering data? 

[removed] 

you really didn't buy a stock or even a mutual fund. you bought an interest in a publicly traded partnership. you see that box checked on the k-1. that's why you got a k-1.  as part of the k-1 package you should have gotten a supplemental schedule to allow you to compute your tax basis in it.  that needs to be used in lieu of the cost basis on the broker's statement.  brokers receive no update on a partnership's activity which affects tax basis so they use your original cost. 

simple example. you bought it for $10K. the partnership had a profit of $5K. you sell it for $15K

broker shows sales price $15K cost $10K profit $5k. so you would have on your return, barring correction, $5K Short-term Capital gain and $5K of partnership income. in fact, your tax basis in the partnership goes up by the $5k of partnership income so you sold for $15K the interest that had a tax basis of $15K. so short-term capital gain = $0. you only had the $5K of partnership income 

[Checkers2]

Thanks for your response.  So are you saying that as it currently stands, I am being taxed on Schedule D STCG via the brokerage 1099, and also a similar amount via the K-1?  That is what I believe.  It seems like the 1099 data should be zeroed out as you suggest (I think?), but I have no idea how to do that since I entered all the data from K-1 and its supplements into TT per instructions.  Granted, a few of the TT K-1 instructions are unclear so I could have made a mistake, but I tried adjusting various entries to no good result.   I could always adjust the Sched D proceeds & cost numbers to eliminate this transaction but no doubt that is a bad idea even though I think it would result in the correct numbers.  I assume the problem is in my K-1 entries, but do you have any idea what part it would be in, or what I should look for?

[nexchap · Accepted solution]

There are two key steps:

• Figuring out the correct cost basis for your AGQ.  Its not the $6000 you originally spent.  Its going to be $6000 plus whatever adjustments to basis are reported on your K-1.
• Entering the actual sale.  In the K-1 interview, when it asks you about the sale, the recommended way is to enter 0 for proceeds and 0 for cost.  If you do this, the K-1 interview won't duplicate your 1099-B.  If you instead enter values here, the K-1 will create a new 1099-B (code C or F) duplicating the one the broker sent you.

I always keep the K-1 from creating a new 1099-B.  It seems simpler to me.  So if you do that, you'll just need to adjust the cost basis on the 1099-B to reflect the correct number.

[Checkers2]

Thank you very much.  I zeroed out the whole sales info page and the result looks reasonable.  The basis increase from the K-1 was 2700 and the additional tax generated from the K-1 was 660 fed & 280 MN which seems right. 

My only issue with your suggestion is this:  You said to also adjust the basis on the 1099-B data, which would mean increasing it by 2700.  When I tried that it essentially wiped out all additional tax that had been generated from k-1 data.  That doesn't seem legit to me, although I wish it did.  Not to mention my paranoia that altering the 1099-B cost data would be noticed by the IRS.  So I'm leaving the original 1099-B data intact, and paying more tax.  Thanks again.

[Checkers2]

By the way, I'm trying to thank you both by giving thumbs up but the system isn't letting me, they jusat don't seem to do anything when I click on it.