How I report the sale of MLP shares in Turbo Tax. I sold all shares.

[nexchap]

@PAGB Various is fine for sale date too.  And yes, keep at-risk checked.  Think about it as "At the time of the sale, was all of your investment at-risk?"  It was, so you check the box and TT doesn't have to walk you through worksheets to look at limiting your deductions.

[PAGB]

Thanks I think I'm just beginning to understand.

After following your advice the Your Income page shows

Sch K-1   shows 0.00$

Contracts and Straddles  shows the amount (a loss) shown in Box 11 (code C)

Does this sound right?

@nexchap 

[nexchap]

@PAGB Yes.  Another way to think about all this is to just focus on the cash going in and out of your account.  When all the entries are done, you basically pay tax on the difference of cash in vs cash out.

So if you bought for $100, and sold for $250, you pay tax on $150 in profit.  If it was a partnership, and they told you to adjust your basis by $6, you'd be paying tax on $156 in profit.  The only way that's fair is if that $6 shows up somewhere else on your return, as a reduction in income.

That's what you made happen here.

[nancidalzell]

I am in the K1 interview. This year I sold some of my MLP/PTP shares. All long term. These are not reported on a 1099. I must manually enter them; however, the K1 interview does not ask me if I've sold shares. The K1 includes a complicated sales worksheet that will cost me $500 for CPA to complete for my 2021 tax return. The worksheet instructions refer to Form 8949 (for sales proceeds and avg cost basis) AND form 4797 (for gain subject to recapture as ordinary income) AND form 6251 (for gain/loss adjustment). My guess is to open FORM 8949 in TTAX and manually enter these numbers - and that may generate data to FORM 4797 and 6251. Any one else dealing with this creative way to use TTAX to report gain/loss of MLP shares - or is it pay $500 to my CPA?   Thanks

[nexchap]

@nancidalzell This thread is simply a long discussion about entering the sale of a MLP.  If you read through it, much (all?) of what you need to know will be spelled out.  The only thing a little unique about your post is the lack of a 1099-B from your broker, which is unusual.  But in the Cap Gain interview, there's a place where you can enter sales not reported by your broker.  As to the interview not asking about the sale of MLP shares, in the K-1 interview there's a choice of "This partnership ended..." which you'd check if you sold all shares, or "Disposed of a portion of my interest..." which you'd check if you only sold some of the shares. 

[nancidalzell]

thx  - the broker did report the sale on 1099, but not the cost basis. the K1 provides a 'complicated' sales worksheet to calculate cost basis. now that i'm knee-deep in getting smarter, the MLP is an asset sale with distributions - so it is treated differently than a stock sale with dividends. Hence, the MLP cost basis is adjusted based on past distributions not taxed in the past  - until the asset (the MLP) is sold. The K1 sales worksheet adjusts the cost basis, based on past distributions AND based on what state you are in - some states (like Calif/where we are), do not conform to federal rules regarding "bonus depreciation" - so another set of numbers is input. It's been a four-hour learning exercise AND I'm very appreciative of your reply. Hopeful my info also helps you and others.

I was able to "ADD new K1" in TTAX, so it provided the complete interview to enter the sale.  However, it did not result in Form 8949, which the K1 worksheet references. Likely I will open the 8949 form and override the data entry.  

[nexchap]

@nancidalzell Sounds like you're on the right track.  Keep in mind that the adjustments to cost basis on the K-1 Sales Schedule include past distributions, as well as every other tax related entry that has shown up on past K-1s.  I mention it only so that you're not surprised if you try to reconcile the adjustments to your past distributions.

[PAGB]

So we're a little confused what numbers from our K-1 should match the info on 8949

All ETF stocks bought and sold in 2021,   Final K-1,     PTP, only box 11 (code C) has an amount (negative) all the other boxes are zero

a

And also is the " Capital contributed during the year" in part L on K-1 show the total money we put in ?

Meaning should add up to the total purchasing price of all the "Buys"?

[nexchap]

@PAGB There's actually not much (anything?) on the K-1 that's going to match your 8949 (Cap Gain/Losses).  The partnership doesn't know what you sold for, so it doesn't list your sales price or try to calculate your Cap Gain/Loss.  If it lists your purchase price, it might list your "Cost Basis".  That would match the cost basis you use on 8949 IF you had not Ordinary Income (which is typically listed on the K-1 Sales Schedule).

And yes:  Capital Contributed During the Year should match what you spent to buy into the partnership.

[luke622]

Nexchap, thank you for being here. I don't know why TT can't make these things automatic...they should pay you;)

I have filled out my TT interview forms as you suggested but just had a philosophical question because something doesn't feel right. I used your formula for fixing my 1099-B to get my accurate capital gain for the sale of my MLP. Took Sales proceeds (from broker record) minus cost basis (box 6 on MLP sales schedule) minus ordinary income (box 7 on MLP sales schedule - gain subject to recapture as ordinary income). Is that correct?

My question is, on my sale had a $8K apparent capital gain based simply on purchase price and selling price. But after figuring in the revised cost basis, which reflected payment distributions received from the MLP that lowered my cost basis, that capital gain rose to $26k. However, when I then subtract the "gain subject to recapture as ordinary income," my final capital gain for tax purposes is only about $2k. That's what I don't get...I sold it for 8K more than I paid for it, and received thousands in dividends not previously taxed, yet my taxable capital gain is only 2K? How can that be right? 

I guess my question is, why is the "gain subject to recapture as ordinary income" subtracted in order to figure capital gain for tax purpose? I'm just missing the rationale that appears to enable me to hide thousands in untaxed income I received.  It just seems philosophically to me like my capital gain should be sales proceeds minus my adjusted cost basis, full stop?

Many thanks!

[nexchap]

@luke622 Let's work with some made-up real numbers, since I find that writing about "subtract this from that" when dealing with both negative and positive numbers, gets confusing.  And I'm sure I've been guilty of getting it wrong once or twice when trying to answer, so with numbers:

Let's say you bought for $30k, and sold for $38k.  There's your $8k CG on original purchase.

Let's also say your Cumul Adj were -$18k.  So that lowers your basis to $12k, and gives a Total Gain of $26k

But that $26k isn't all taxed at the same rate.  Some of it, the Ordinary Income, is going to be taxed at regular, W-2 like, rates.  The rest gets CG rates.  So you break the $26k into two pieces:  The Ord Income, and the CG.  So if you had $24k in Ord Income, you'd only want $2k to show up as CG.  So your basis on the 1099-B would have to be $36k.

Hope that gets you to what should be on the forms.  If I wrote something somewhere that states it incorrectly, let me know and I'll go see if I can edit it.

[luke622]

thanks for your prompt reply, very helpful.

I didn't really have any issue with the numbers, or which ones should go where on the forms. It just looked like I was going to get thousands of dollars of income and not have to pay tax on them. Sounds great, but I don't think the IRS would agree;)

But I think you explained my conundrum by pointing out the "ordinary income" part of the equation IS being taxed, just not in the capital gains area. The 24k in ordinary income in our example isn't escaping taxes, I guess it's getting assigned taxes somewhere else in the TT program behind the scenes. Since it's being taxed as "ordinary income," it therefore comes off the figures used to determine capital gains taxes?

I think it just all boils down to my not really understanding MLPs and how their revenue is handled and taxed compared to a normal stock investment.  I'm pretty sure if I was audited for last year I completely screwed up the taxes; unfortunately I didn't find this chain of comments until yesterday. But this year now looks solid. Thanks!

One last question...since the MLP sales schedules don't break out numbers between ST and LT, but just give a percentage, should one just take that percentage and fiddle with the ordinary income and cost basis numbers to figure out capital gains in different long term and short term categories?

[nexchap]

@luke622 Glad its sorted out.

If you look at your 1040, line 8 refers to Other Income from Sched 1.  And if you then dig into Sched 1, you'll see the Ordinary Income from form 4797 showing up on line 4.  That's how you get taxed on all of it.

In addition, there's also line 5 on Sched 1, where any suspended losses from your K-1s get released when you sell.  That's the 3rd big piece of the final MLP reconciliation.

[PAGB]

@nexchap 

I'm still following this thread to get a better understanding of everything so thank you!

Based on your answer to Juke622, I'm wondering if we did the cost adjustment in the 8949

correctly.

Final K-1,     PTP,      All ETF stock bought and sold in 2021

Beginning and Ending Capital 0

Capital Contributed    9000

Current year net income    -1000

Withdrawals and dis  8000

11 (code C):   -1000 

All other boxes zero or empty

Just for reminding:  K-1 on TT answered as you helpfully suggested resulted in Sch K1 showing  $0.00 and Contracts and Straddles showing  -$1000.

This resulted in our tax refund increasing by something around $300

Sales Schedule shows  Cumul Adj= -1000,

For simplicity lets assume: Buy= 6000  Sell= 5500   so Loss is 500

Since I've already benefited $300 with the K-1 form, my aim here is to make sure I don't benefit

again when doing the 8949

I use the Cuml Adj to lower the basis to 5000 so now I have a gain of  500

Is my thought process correct?

We do our 8949 with Tradelog due to a large number of trades and wash sales so we can't actually

manually adjust our cost basis but have to do it through Tradelog functions which seems to be increasing the sell price instead of decreasing the cost basis. The result is still the same it seems.

[nexchap]

@PAGB Yes.  From a cash standpoint, you lost $500.  On your taxes, you'll see a $500 Cap Gain, and a $1000 Contract/Straddle Loss, for a $500 loss.  If you're using a version of TT that let's you get to Forms mode, you can walk through all the forms to watch the $1000 make its way onto the 1040.