MLP Stock Sale with Negative Cost Basis

[Frank145]

I am assuming TT 2020 has not fixed its ability to correctly handle a MLP stock sale.  In my case ALL the shares were sold and the K-1 shows a negative cost basis (box 6 on sales schedule provided).

I have seen a long chain of messages from 2019 that covers this subject. However it tends to kind of jump around and my very senior brain just cannot handle that the chain as it jumps from one scenario to another

Does a simple.....yet detailed step by step process  exist to get this done?    Something a very senior citizen can follow....

Thanks for any help you can provide

Frank 

[nexchap]

@Frank145 

Hi Frank -- I assume the thread you mentioned trying to follow was this here:  https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/how-i-report-the-sale...

The original response to that message was intended to be the "simple" step by step process.  The next 5+ pages of questions and comments went on to demonstrate that "simple" and "MLP" don't seem to fit together.

Your situation is a good example.  In one sense, a complete sale ought to be easy to enter.  But your negative cost basis is a problem:  cost basis can't be negative.

This highlights an issue with K-1s in general:  they don't always hand you the numbers that need to be copied over into something like TT.  They give you data, that you have to then use in your own record keeping.  Negative cost basis is an example of that.  The K-1 preparer knows they can't be negative,  but its up to you to figure out how to deal with that so they don't try to adjust the K-1.

In the year your Capital Account (Section L) went to 0, you no longer had "capital at risk" and needed to start segregating your losses (they couldn't simply be suspended anymore for eventual sale).  In the year the sum of your Capital Account and any Nonrecourse loans went to 0, you no longer had "basis" and had to start declaring your distributions as long term capital gains (and any losses simply went away).

If your prior year returns have dealt with all that correctly, great!  If not, you may need to amend them.  Either way, the sales schedule you received in the K-1 is going to need to be replaced with something that brings your cost basis to 0 (not negative), and the suspended losses that TT will put on Sched E need to be adjusted accordingly.  That is far from simple, and this is where I always advise finding a CPA / tax preparer to help.

Sorry I can't be more help.

[Frank145]

Thanks for the reply.....

So lets start over...the easy question.....just entering a MLP K-1 ...with negative Capital account   ..year one 

It would seem via the "string" all one has to do is in the K-1 interview process to not check the box about 
 "capital being at risk".....  does TT handle the rest? 

Thanks again

Frank 

[nexchap]

@Frank145 

If you don't check the "at risk" box, TT will run you through an interview about your at-risk limits.  It will also create and file Form 6198, tracking losses that were disallowed for future years.  But its not a simple interview, and will expect you to know your way around the rules on basis and capital at risk. 

I also am not sure if it will trigger "Distributions in Excess of Basis" income when your basis drops below 0 (I haven't gone through it personally, so you'd need to know if you owe those taxes and double-check to make sure they made it into your return).

With that said, TT will definitely not tell you how to adjust the Sales Schedule you got in your K-1.  So you'd have to change the "cumulative adjustments" appropriately based on your own records.

Basically, TT does an amazing job of automating a number of complicated tax situations, but MLPs aren't one of them.  The Forms you need are mostly there, but the automation to replace an expert isn't.