Ofsetting K1 ordinary gains with losses from another K1

[diskapi2]

Hi,

I have 2 K1s (one is from GLP and the other from ET).

The GLP K1 has significant ordinary gain (more than the distribution they made to me), turbotak calculates that I owe taxes on this income.

The ET K! has losses in box 1. When I enter ET K1 into turbotax, it does not reduce the tax induced by the GLP K1. Can I not use losses of ET K1 to offset gains of GLP K1?

If each K1 lives seperately. Do I get to deduct these gains of GLP when I sell it?

Thanks,

[Mike9241 · Accepted solution]

GLP and ET are publicly traded partnerships (PTP). the tax rules for PTPs  are that each one stands on its own as to profit and loss - profits are taxable while losses are suspended until that  PTP has income in future years or you completely dispose of your interest in it in a taxable transaction.

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When you sell a PTP it will provide a supplemental sales schedule which use to compute any taxable gain or loss. Usually there are 2 parts to the gain/loss. Ordinary income recapture under IRC 751 which adds to tax basis and then you use the proceeds vs the new tax basis to compute capital gain or loss. You can not use the brokers statement for reporting gain/loss because it does not track tax basis.

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Income adds to your tax basis and losses and distributions reduce tax basis so you don't get double taxed on the same item.

[diskapi2]

Thank you very much for your kind reply.

I have a follow up question.

The GLP K1 results in taxable income of $40K, while I only received $12K as distribution from them.

Essentially, I will be paying much more in taxes than the money I made from them. I understand the MLP can do this. But will this $40K that I am paying ordinary income taxes for somehow increase my basis or will there be any way for me to use this to offset any gains in this year or future years, e.g. when I sell it.

Thank you

[Mike9241]

as previously noted income the $40K increases your tax basis and the $12K distributed decreases your tax basis.

so assuming nothing else happens and you paid $10K to buy GLP your basis is now $10K + $40k - $12K = $38K

sell it for $38K and while it looks like there would ne no gain or loss remember that I warned about section 751 recapture. I don't know if GLP would have this. if not you have no taxable gain or loss since the $38K selling price equals your $38K tax basis.  But lets say there's $5K of 751 recapture. That's ordinary income.  It increases your tax basis from $38K to $43K  so if you sell for $38K you now have a $5K capital loss. if you have no capital gains in the year of sale you get burned a little since the $5K would be income but the capital loss deduction is limited in any year to $3K.  the remaining $2K of capital loss would be a carryforward.