Need help with K1 PTP and Sales schedule

[EleK]

Hi can someone walk me through how to fill in the K1 interview on TT home & business? I searched the forums but I got more confused. So I purchased PTP in 2020 and sold all in 2021 so here is the step by step of what I'm doing:

On the next screen it shows enter sale information and this is where I have issues filling in the data since the sale price will be on 1099-B I'm entering 0 however I'm not sure what to enter in the rest of the fields so any help is appreciated. I attached the sales schedule for reference also.

 Do I enter for Partnership basis 9,798 from column 7 or 9830 from column 10? What to enter in the rest of the fields?

Thanks again

[nexchap]

For the Ordinary Gain line, you'd enter 9798 in the first column, and 9106 in the AMT column.  You want to keep TT from calculating any Cap Gain/Loss here since you already have a 1099-B, so for Partnership Basis enter -9798 and -9106.  On the next screen, you'll see that Cap Gain/Loss is 0.  But the Ord Income will transfer to form 4797.

On your 1099-B, you'll change the cost to report the correct Cap Gain/Loss.  The K-1 should walk you through the math, but its [purchase cost] less [cum adjustments] plus [Ordinary Income]

Note:  Edited to fix formula.  Originally entered "less [Ordinary Income]" which is wrong

[EleK]

Thank you very much for your help nexchap. So I have to go manually into the 1099-B form and change the numbers?  So based on the calculation I will have -4956.72 loss instead of 817.41 gain? I attached screenshot for reference.

[Mike9241]

I disagree enetering negative basis results in a gain twice the amount

basis should be entered as 0

ordinary income 9796/9796 (the amt adj is for the capital gain portion

then you need to adjust cost basis on the 1099-B

purchase price

less the adjustment to basis (assume it's a positive number) or add the purchase price and adj to basis as a negative (ex purchase price 26617-6617=20000)

add the ordinary income of 9796

so in my example the revised cost basis would be 29796

the amt adj to line 2k of 6251

you need to access the 6251 worksheet

you will come to  a line that says  disposition of property

there will be an amount  for regular tax.  reduce that by 692

then you will see a negative 692 on line 2k of the actual 6251

[nexchap]

@EleK Looks like you bought these shares for $10,640.87 (cost basis on your 1099-B).  You should double-check your own records to verify, but usually what the broker reports is the purchase price.  Assuming that's right, your true cost basis is 10647.87-6617 = $4,030.87.  So you're TOTAL gain on the sale was $11,458.28 - $4,030.87 = $7,427.41.

However, that TOTAL gain is split between Ordinary Income and Capital Gain.  You're Ordinary Income is $9,798, so your Capital Gain/Loss must be ($2,370.59).  So the Basis you want on the 1099-B is $13,828.87.  That's actually your purchase price (10647) less your cumulative adjustment (6617) PLUS your ord income (9,798).  I apologize for my mistake in the formula provided earlier (I've edited it to make the correction).  I was typing too fast and didn't think it through.

Make sense?

[EleK]

@Mike9241Thank you. I entered the 9,798 for the ordinary gain and then went into the form and it actually says to enter 0 on sales price and 0 on Partnership Basis. When I go to 1099-B Wks form I can't edit anything. also there is no 6251 form for some reason?😕 Also there is Schedule E Wks (I'm guessing worksheet) for Royalties. The line 7 on my K-1 form has 0.

[EleK]

@nexchap $13,828.87 actually $13,821.87 😀 makes sense. So I need to put the $13,821.87 instead of $10,640.87?

Also it look like I should put Partnership Basis as 0 as@Mike9241 suggested? Sorry for all these questions. I switched to Turbo Tax this year thinking it would be easier to file the K-1.

[nexchap]

@EleK Unfortunately, I don't think K-1s are ever easy.  TT does make it easier, once you've figured out how to massage TT.

On your 1099-B, during the interview a question will come up where you can check the box that "My cost basis is incorrect" and it will allow you to enter the correct one.  That's the easiest way I found to make the fix.

As to the K-1 and Ordinary Gain, there are multiple paths to the same place.  The problem with TT's instructions is that the "Enter 0 for sales, Enter 0 for basis" is incorrect if you have Ord Gain.  That's why you have to ignore that.  AND, given that the K-1 includes an entry for AMT adjustment to everything we've been talking about, that has to be handled somehow too.

My method (0 for sales, partnership basis set to the inverse of the Ord Income) handles the AMT adjustment and gets the Ord Income done.  Mike's method (Ord Income for sales and 0 for basis) handles the Ord Income but you then have to handle AMT elsewhere in the interview.  I find that too complex, so recommend a different path.  The key is to make sure you're actual tax forms reflect the right numbers.  Both methods will get you there.  Its just a question of dealing with the AMT piece.

[EleK]

Thank you @nexchap . When I use your method I owe more than $1K extra vs the  "Enter 0 for sales, Enter 0 for basis". Since the new cost basis is $13,821.87 instead of $10,640.87 I would guess the gain would be reduced so I would owe less money instead of more. Am I right or I'm missing something? Do you know what form has the AMP piece? Is it 6251? If it is I don't have it in my forms for some reason.

Thank you again for your help

[nexchap]

@EleK "Enter 0 for sales, Enter 0 for basis" is not allowed in your case.  You have Ordinary Income.  If you enter 0 for sales and basis, and look closely at your return, you'll see TT is creating a brand new 1099-B, code C or F, for a big capital loss offsetting your Ordinary Income.  That's incorrect. 

Overall, when working with TT and K-1s, its important to know what to expect to see on your return, and then to verify that its there and that TT hasn't introduced anything extra.

AMT is on form 6251, but it only affects tax payers with high incomes.  If that form isn't appearing in your return TT doesn't think you're impacted.

[EleK]

This software is driving me crazy I might just go to a CPA😫 I did comparison of 3 scenarios:

1. No K-1

2."0 for sales, partnership basis set to the inverse of the Ord Income"

3."Enter 0 for sales, Enter 0 for basis"

...and this is what I get on my 1040 lines 7 and 8

My 1040 capital gain should be lower than $9,976 since the cost basis is $13,821.87 (after adjustment from the K1 sales schedule) instead of $10,640.87 from the 1099-B. For some reason I'm getting other income in amount of $7,153 (7,203-50) when I input the K-1 which comes from form 4797. Basically TT is doubling (- the amount in Box 1 from K-1 form) the capital gain I'm I right?

[nexchap]

In many respects, you're complicating this by creating scenarios that are incorrect, and then trying to figure it out.  But to explain Scenario 3, go look at the image you posted in your reply to Mike earlier.  Notice how, when you enter 0 and 0, the bottom screen on that image shows a long term loss of 9,798?  Notice how that's also the difference between your line 7s on Scen 2 and 3?  That's not a coincidence.  Scen 3 creates a phantom, incorrect, LT loss that is an error.  It just added it into your return, without changing anything else.  So throw that scenario away.  That's why the instructions about entering 0s are a bug.

On your Scen 1 vs 2, I assume your cost basis on the 1099-B was the same for both of them.  So the reason it only changed by $3 is your K-1.  Look at line 8 (on the K-1) -- short term cap gain.  Its $3, which is added to your other Cap Gains and Losses.

As for the $7,203, that's what's supposed to happen.  The losses that show up on the K-1 are actually also losses are your tax return.  So they help offset the Ordinary Income.

If you want to figure out if your Cap Gain/Loss is correct, go to the 1099-B itself and look at all the different entries.  The one for this sale should be the loss calculated earlier.  But you obviously have gains from other places, giving a net positive.

[EleK]

@nexchapyou are correct the 1099-B basis is same for all 3 scenarios. It is $13,821.87 (after adjustment from the K1 sales schedule) instead of $10,640.87 from the 1099-B.  The 1099-B only has the Limited Partnership listed with short and long term gain. I don't have any other capital gains. The difference in the tax I owe is more than $1K between the scenario 1 and 2. The difference between those 2 is the no K-1 and the inverse of the income. The capital gain line 7 is very close on the 2 scenarios and that capital gain comes from the 1099-B after the $13,821.87  adjustment. If I don't adjust the 1099-B and leave the cost basis unchanged ($10,640.87) than the gain will be larger (obviously). The software counts the gain twice: the capital gain from the 1099-B with the $13,821.87 adjusted basis is $9,976 which is correct but then it adds the 7,203 as other income that comes from K-1 and from PTP which doesn't makes sense. I don't have any other gains except the $50 shown previously. So basically if I only leave the 1099-B and no K1 I owe $1K less tax. If I start inputting the K1 info where it says enter sales information the tax I owe increases for over $1K. Since the K-1 form line 1 says there is a loss of 2,521 (see above) the gain should be reduced unless I'm missing something. I'll read some more on this topic and hopefully I will figure it out by the time I need to submit the tax forms. Thanks again for your help.

[nexchap]

@EleK Digging deeper into partnerships would probably help.  The thing to keep in mind is that you are actually a partner in a business.  Partnerships don't pay any taxes at the central, "business", level.  They pass all the taxable information to you, and you file it and pay your share of the taxes.  That puts you into a whole new realm of taxation, because the rules for partnerships are completely different than the rules for individuals.

So in a normal year, when you don't actually sell anything, you'll still enter in your K-1, possibly pay taxes on things like interest, dividends, or cap gains that they report, and also potentially have losses that are suspended to future years.  You should have had this in 2020 when you bought the partnership.

Then when you sell, 3 new things happen:  you have to report Ordinary Income from the partnership; you report your Cap Gain/Loss on the sales; and you also get to report any losses the partnership generated as an offset to the other two.

With that said, there are a couple things here that don't make sense.  First, you say you don't have any other capital gains.  But if you're 1099-B shows Sales Proceeds of $11,458.28, and a Cost Basis of $13,821.87, then you have a Cap Loss of ($2,363.59).  So why are you showing $9,976?  You must have something else in your Cap Gains contributing an extra $12,339 in gains.

Second, your K-1 adjustments to basis are -$6617.  Those adjustments will come from your 2020 and 2021 K-1s.  Its a combination of distributions you've received (19A on the K-1) and all the other taxable events on the K-1 (like the $2521 loss on line 1).  Your 2021 K-1 shows about $3,944 of adjustments.  So there must be $2,673 worth of adjustments from 2020.  Was all that distributions?  Because otherwise, you should have carryovers from 2020 that TT takes care of if you entered the info into TT.  But I don't see them, given what you've shown coming over from Sched E

[4catsandme]

Hey, your advice from a couple years ago has been extremely helpful but what if the sale of the PTP is only a partial sale...how do you enter the ordinary gain on the K-1 so that it flows to form 4797 correctly but doesn't trigger passive loss carryovers to offset? Since my understanding is you cannot use passive loss carryovers until the entire asset is disposed of.  Thanks!