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

[sfeldman]

Hi nexchap,  I just wanted to add my personal appreciation to all the information and help you provided us with on this topic. I'm sure I'm not alone in expressing We couldn't have done it without you!

[TheresaHTX]

Thank you for the excellent explaination of how all this works!  I have been researching this for hours and have spent days stuck on the K1/1099B entries for a sale.

[july007A]

thank you for this thread. this has helped me a great deal

[JB4797]

Hi nexchap,

First thanks for all of your help on this. I had a few questions on this topic:

1) Is it best to adjust the cost basis on the 1099-B directly using the Sales Schedule that came with the K-1, or am i better off setting the cost basis on the 1099-B equal to the sales price and entering the cost basis info in the K-1 Interview? In this case, i'd enter sales price as the proceeds from the sale and the "partnership basis" would be the adjusted cost basis + the ordinary gain?

2) Assuming i make the adjustments directly to the 1099-B as you suggested and set sales price equal to 0 and report the ordinary gain in the K-1 interview, why is the "partnership basis" the inverse of the ordinary gain number and not just $0? Does setting the partnership basis as the inverse of the ordinary gain negate the ordinary gain?

Thanks.

[nexchap]

@JB4797 TT creates a new 1099-B, coded C or F (revenue and cost not reported to IRS) if you report any cap gain or loss in the K-1 interview.  So on your questions, in reverse order:

2) Since the objective here is to prevent a new 1099-B from being created, you have to enter values that tells TT that no CG occurred.  It calculates CG as [sales]-[basis]-[ordinary income].  So if you enter 0s for the first 2, you wind up with a cap loss being calculated and a new 1099-B.  Setting the basis to the inverse of the Ord Income fixes that.

1) You can do this ONLY if the entire sale was short or long term (can't have both) AND its a complete disposition (no partial sale).  I've just never bothered, because you have to edit the 1099-B either way and I found it easier to have a consistent process that works for all cases.  But if you do go this route, your basis would just be the basis -- no adjustment for Ord Income, since that's taken care of in the TT calc.  You would verify this by looking at the screen TT shows you immediately after entering the sale info, where it shows the CG its calculating.

[JB4797]

Ok thanks, 3 follow-up questions:

1) I'll make the adjustments to the cost basis on the 1099-B directly as you've suggested (average basis + cumulative adjustments + ordinary income = cost basis entry). 

2) What now should i enter for the K1 Interview fields? Let's assume my ordinary income recapture is $10k. Is this correct?

Sales price = $0

Selling expense = $0

Partnership basis = -$10k

Ordinary Gain = $10k

3) I did a full disposition in 2021 but made multiple sales throughout the year. The FIFO method on the 1099-B results in all LT Cap Gains, but the average cost method shown in the K-1 Sales Worksheet results in both LT & ST Gains (~95% are LT gains though). Can i just use the FIFO method in the 1099-B? How should i handle the multiple sales transactions in TT or does entering the adj. cost basis for each transaction in the 1099-B address this?

[nexchap]

@JB4797 Yes on 1 and 2

Technically, your basis in the partnership is "unified" -- each sale is pulling from every lot you bought, for a combination of short and long term.  So even though your broker will allow you to do FIFO, it doesn't meet the letter of the IRS requirements.  To illustrate, suppose you bought 1000 shares 10 years ago, and 100 shares yesterday.  If you sell 110 shares tomorrow, it would have to be treated as 100 from the old lot, and 10 from the new lot.  The sales schedule would show this as a 90%, 10% split on the basis.  And your broker would report it as both LT and ST. 

So with that said, you have a couple options.

1) If you contact the K-1 preparer (contact info should be in the K-1), I believe they'll reissue the Sales Schedule using a FIFO calculation.  This won't meet the letter of the IRS reg (which the K-1 discusses somewhere in their fine print), but that's something a tax expert could advise on.

2) If you contact your broker, they may reissue the 1099-B to reflect average cost (giving you some short term transactions instead of everything being long term).  I suspect they won't though, since too much time has passed

3) Depending on the dollars involved, the 5% that should be short term may be inconsequential.  In that case, you could decide to simply not bother adjusting.  This is NOT tax or legal advice -- just an observation.

4) You can do your own calculations of what the 1099-B should have reported (assuming you made every sale pulling proportionally from each lot), and then use the 1099-B interview to adjust what the broker sent you.  You'd probably want to include a statement explaining your adjustments.  I haven't done this myself, so if you go this route I'd suggest posting it as a separate question on the forum to get some better advice on how to handle it.

[JB4797]

Thanks @nexchap. When editing the cost basis on the 1099-B, do i check the box that says "The cost basis is incorrect or missing on my 1099-B" or should i leave that unchecked and change the cost basis? The transactions are all under the "long-term section where cost basis is not reported to the IRS."

[nexchap]

@JB4797 You'd just check the box, and TT will let you enter the correct number.

[Snobigdeal]

Is  this entry solution still correct for filing 2021 taxes?

[Snobigdeal]

I sold two MLPs in 2021each with a loss compared to original cost basis..  Each were both in 2010.

Each for a loss of $17,000

Each show a gain subject to recapture.  One for $11906 and the other for $7651.

How do I fill in the TT input ?  

[nexchap]

@Snobigdeal This thread is still accurate.  If there's something about the original answer that doesn't address your question, go ahead and post back.

[wingman211]

Hi,

I got two (2) K-1 for a merger and a sell. I'm trying to figure out how I calculate my ordinary income? Is it a number on form 1065 (part 1, 2 or 3)? Or is it on the sales schedule? One of my K-1 has a sale schedule and the other does not. My sale schedule has 7 columns (units sold, sale date, sale proceeds, purchase price, cumulative adjustments to basis, cost basis, percentage long term). I can't seem to find any ordinary gain information.

Is it possible to point me out to where this information is?

Thank you

[nexchap]

@wingman211 It's possible that your partnership didn't generate any Gain that's treated as Ordinary Income.  Typically, there would be a column on the Sales Schedule titled "Gain Subject to Recapture as Ordinary Income".  Alternatively, you might have an entry under box 20, code AB, for "Section 751 Gain (Loss)"  That could be it too.  If you don't have either, then it doesn't apply to you.

[wingman211]

Thank you for the reply and information.

So if i don't have any ordinary gain, what should I enter as part of the "Enter Sale Information" page?

Same price: ?

Selling expense: ?

Partnership Basis: ?

Ordinary gain: ?

1250 gain: ?

Just as context I did receive a 1099-B for the merger with box E (basis not reported to IRS)

The merger gave me cash and shares from two differents new entities. I got a final k-1 from my original shares, and those paid me out a fixed price per share + some shares from two different news companies. One of those companies generated another k-1 which has  zero everywhere cause I sold them right away (a few days later). The contributed capital is also equal to the withdrawal (450$ for both). I also didn't get a sales schedule for this one (does that means there is nothing to report?).

The rest of the merger was paid out in cash in my brooker account. The other company shares didn't produce a k-1 but the basis is still not reported to the IRS (I'm guessing because the basis is still related to my original partnership shares).

My original k-1 has the following for the selling schedule:

Unit sold: 275 units

Sale proceeds: "empty" (should it be the total of all my new shares + cash from the merger on my 1099-B?)

Purchase price: "empty" (should it be my initial purches cost?)

Cumulative adj to basis: -37

Cody basis: "empty"

Percentage long term: 100%

With the numbers above, what should I enter in the k1 interview and how should I change the basis on my 1099-B transactions?

Thank you for your time