How to report K1 security Final sale? Within 1099 or K1

[sam992116]

I sold K1 securities (all units).

Sale is reported both on 1099 which got imported into Sch D and Sale is also reported on K1.

There are 3 issues here

Q1: It is final K1. I need to remove sale from one end which one is more preferable from K1 or 1099. If I do remove from 1099 then numbers will not match. How to remove K1 sale (I have to choose final K1 so there is Sale interview or just write Zero for buy and Sell within K1 interview?

Q2. Cost basis adjustment. 1099 only has Sale proceed correct but cost basis need to adjusted. How can I do that within 1099 sales ( I have lots of sales)?  Can it be done within interview mode or I have to dig out within forms mode?

Q3. How do Turbo Tax sort out Sales within 1099? By alphabetic security name or by Sale date?

Q4: This issue is complicated one.

Lets say I bought a K1 security for $5000  (box 4 of sales data) and Final K1 is showing cumulative adjustment to basis as ( - $7000 , box 6 of sales data ) and

Gain subject to Recapture as ordinary income  $6000 (box 7)  how would I report this ordinary income and from where this income come from?

[nexchap]

Q1: Use the 1099-B.  The K-1 reporting for sales has a bug, and shouldn't be used.  Enter 0s for everything, unless you have Ord Income.  In that case, see Q4.

Q2:  It can be done in either the interview of forms.  During the interview, their will be an opportunity to say that you need to correct information provided by the broker.  You can then adjust the cost.

Q3:  Not sure.  I believe its just how the broker reported it, but you'd have to verify.

Q4:  When you enter the sales data, instead of all $0s, you'd enter 6000 for the sales price and $6000 for Ord Income.  This will still calculate to 0 cap gain as far as the K-1 is concerned, but the Ord Income will be reported correctly.  Your basis for the sale would be 5000-7000+6000 = 4000.  The source of the Ordinary Income is usually depreciation:  partnerships take lots of depreciation, which shows up in box 1 as losses.  But when you sell, they have to reverse some of that if the underlying assets are worth more than what's on their books.  So the Ord Income is really just a reversal of the Losses that will be reported on Sched E

[sam992116]

Thanks a lot for taking time describing in detail how to handle sale of K1 my this and other questions.

I have few questions as Turbo Tax seems like doing funny things already.

Q2. I have found how to correct cost basis in both interview and form mode. I think I will do it in Interview mode as Form mode are sheets and one has to enlarge size and but then don't see top of column (I want to avoid mistakes). It seems like Turbo tax list sales by Sale date both in interview and Form mode so that was easy.

I have couple of K1s. One is all LOTs short term holding periods and others all LOTs are long term.

Turbo Tax report as details provided by brokerage and in my case they use lot by lot. Lets say I have 5 lots within one k1 and Good thing is they all are either Long term or short term holding within each K1.

 Ist Choice

Now lets say I calculate Cost basis form Q4 answer method you mentioned. But this is cost basis of entire lot of shares/Units. I assume I divide it by total shares to get average Unit cost and then multiply by units in each lot reported to correct its basis?

2nd Choice

 Delete 4 lots and then use 5th lot as Sale price and Cost basis but then I have pick one date within 5 lots to show purchase and Sales Date.   (not sure I like this one, may confuse computer data).

In K1 Interview there are 2 cost basis Regular one and AMT one (there is only small difference). Which cost basis should one to use to correct basis in 1099/Sch D interview?

[nexchap]

Don't delete lots on the 1099-B:  the IRS gets a copy of the some or all of that information and may question the mismatch.  You can allocate the adjustment in any way that makes sense, given that all the lots are the same holding period:  it won't change your taxes.

As for regular vs AMT, you'd use the regular info from the Sales Schedule.  But if you have to pay AMT (and TT takes you into that interview), you'd have to make adjustments using that extra information.

[sam992116]

Thank you so much for your input and I have few more question as thing did not go well so could you please help me here as well.

I have some additional information with final Sale of k1 I have few question regarding

Bonus Depreciation info on K1 Sales data

What to Enter in K1 Sale Data

Lets say I bought a K1

Purchase Price (2018)  = $5000 (Box 4)

Sale Price (2023) = $5500    (Box 3)

Cumulative Adjustment to basis =    (- $7000 )   Box 5

AMT Gain/Loss Adjustment = (-$100)

Gain subject to Recapture as ordinary income =  $6000 (box 7) 

Q: not sure where will I enter this?

Adjusted For Bonus Depreciation 

Cumulative Adj. to Basis = (-$7000)   Box 10

Gain subject to Recapture as ordinary income = $6000  Box 11 

Q: What Sale and Basis to Enter in K1?

I used your method for K 1 as Same number of Ordinary Income for both Sale and Ordinary income which is $6000

Q What Basis to enter on K 1 sales data?

Regular= Purchase price –cumulative adj + ordinary gain=5000-7000+6000 =4000

AMT=  5000-7000+6000 – 100 (AMT adjustment) = 3900

It increased my sale price and my refund is decreased ( I can see on top of turbotax) but other thing TT did is,

(not complaining just mentioning)

This is what  happening in FORM Mode in  Form 8949

Sale = 6000

Basis = $10000 (I am assuming it is 4000 +6000)

Gain/Loss = (- 4000)

Should I enter Basis as ZERO in K1? Should it Zero for both Regular and AMT

Zero for Regular

and -100 for AMT

I just did that and Form 8949 with this K1 detail disappeared? And my refund decreased (not complaining just telling what is happening at top of TT).

[nexchap]

You can ignore the AMT information unless you actually have to fill out the Alternative Minimum Tax forms (TT will guide you).

When you enter the K-1 sales info, basis is 0.  On the screen that follows 'Enter Sales Information', titled 'Review Investment Gain or Loss on Sale' everything should be 0.  This keeps the K-1 from creating a new 8949 and messing things up.

Your 1099-B should show the 5500 sales price, and you'd adjust the basis to 4000 for a $1500 Cap Gain.  Form 4797 should show the $6000 Ord Income.  And Sched E should show whatever losses you've had suspended over the years you've owned the partnership.

[sam992116]

Thank you so much for your help. It seems like you are reading my mind. Suspended Loss carry over was next question.

Suspended loss Carry over from Last year. Line 1 of K1 worksheet (within TT forms mode) Ordinary income/loss =  (-$10000)

Schedule 1

Line 4 = 5900 ( This are ordinary gain from Box 7 of  K1 but this got little bit reduced but it is coming from Section 1231 gain/loss Form 4797 = (-$100)

Line 5 = (-10000)

Line 10 =  (-4100)

Then this line 10 number is going to Form 1040 (line 8, additional income for Sch 1). This number is negative so it is reducing my taxable income by this amount. Is this acceptable or software mistake?

Q: Can Net Business loss from k1 can reduce your tax liability from income such as taxable gains or dividend/interest income?

@nexchap 

[nexchap]

The only mistake TT is known to make is around mishandling the Cap Gain/Loss info if the sale info is entered during the K-1 interview.  If you've avoided that, TT will do everything correctly.

On the specific numbers, I don't want to try to interpret / math everything posted, since its too easy to make a mistake.  Better if you recognize what is supposed to be happening, and then check it:

- In total, you put some cash into the investment, and got some cash out.  You'll ultimately pay tax on exactly that profit:  cash out - cash in = amount taxed.

- The amount of tax you'll pay varies, with different rates being applied to different amounts.  That's why so many forms show up, and the numbers are spread all over the place.  But if you add the different pieces (cap gain/loss, Form 4797, Sched E, any other items that showed up over the years) they should match that cash out - cash in figure.

- If you're finding it difficult to find all the places the K-1 is touching your return, a good workaround is to start a blank return, enter only the K-1, and see what it does to your return.

[sam992116]

@nexchap 

Thanks for your reply and helping me understand K1s.

I have few other questions within K1 interview in TT.

These are few question pop up toward end of K1 interview

Q: I have passive activity losses carried over from last year

 I assume most losses within K1 are passive losses so One should check this one?

Q: I have at risk losses carrying over from 2022

Not sure about this one. What is difference between this and passive activity losses. How to find out?

Q: I personally paid Health insurance and long term (Health include dental)

I did pay my own Health insurance (does Health means only health or Health and dental). Not sure why it is asking me in K1 as I am limited partner and not sure if I should check this one?

Disposition of K1

I read some where when you sell K1 partnership (complete disposition), then all carry over losses are either used or released and one can check for FORM 8582 (I hope I am writing correct form number).

I don’t see form 8582 so why? Since my carry over losses has been used up so no more losses left so NO Form 8582.

 Thanks again