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

[nexchap]

@J295 I'm not sure if I understand the question.  Are you asking whether you should actually report the LTCG (and the offsetting loss) to the IRS?  Even though they net to 0, definitely report them.  The LTCG is income and not reporting income is frowned on.  Also, the tax rates for LTCG and passive losses can be different, so it may not actually net to 0.

[MJ2499]

nexchap, thank you for this work. I have spent hours and hours reviewing these MLP threads and yours has been helpful. I have a rather stupid question, but was hoping you can help. I followed your initial post, and I have a 2020 initial purchase of an MLP, and several partial sales of the same. I entered $0 for proceeds, and entered the ordinary gain (let's say $1,000) and the exact inverse (-$1,000) in partnership basis.  I went to the 1099B I downloaded, and yes, it was one where the basis is not reported, so I changed it to the correct basis following my review of the sales lots and calculations. All good. Box 1 of the K-1 was an ordinary business loss loss. Not sure that matters.

What this is doing is putting the capital gain on my 8949, and putting $1,000 on Schedule E under column (g) which is "Passive loss allowed" and putting $1,000 on Form 4797 Line 10 as an ordinary gain. 

What doesn't make sense to me here is why Schedule E is showing a passive loss equal to the ordinary gain on Form 4797. In other words, how does the sale of an asset and reduction of basis cause a passive loss equal to that amount? Doesn't this entirely offset the gain? So what's the point of putting the negative amount impacting basis in the interview in TT? 

Bottom line, I know very little about MLPs and I'm not a tax guy, so just wondering if this is the correct outcome on the forms. Essentially, I'm reporting the capital gain on 8949, I'm reporting the ordinary gain on 4797. But the passive loss on Schedule E (which says the IRS compares K1 information to the Schedule E for a match) doesn't seem to make sense to me. 

I'm assuming this is a really simple answer, and I apologize in advance if I've missed the boat. TT really needs to make this easier. 

[nexchap]

@MJ2499 It sounds like you did everything right.  And the loss coming through on Sched E is how its supposed to work.  As to why, consider a simple case:  you bought in 2019 for $20k, and you sell in 2020 for $22k -- a $2000 profit.  To keep it simple, there were no distributions and there was no Ordinary Gain on the sale.  But what did get reported is a $1000 loss in box 1 of the K-1, also in 2019.

So because of that box 1 loss, your basis is going to drop from $20,000 to $19,000.  And when you go through the sales schedule calculations, you'll be forced to declare a capital gain on your 1099-B for $3000.  But clearly you didn't make a $3000 profit....

So this is where Sched E comes in.  In 2019, when you entered the K-1 info and that $1000 loss, TT suspended it.  It becomes available when you actually generate income from the partnership.  So in our example, when you sold in 2020 that loss would have been released and you'd see a $1000 loss on Sched E, offsetting the $3000 gain on your 1099-B, and bringing you back to that overall $2000 profit.

So that's what's happening in your case.  TT sees the $1000 Ordinary Gain and is releasing suspended losses to offset it.  Because of the nuances of the suspended loss rules, TT can only release losses (if available) to exactly match gains on a partial sale.  On a complete sale, it'll release everything.

Note that in the future, your Ordinary Gains could easily exceed your suspended losses.  So even thought they offset this time, there's no guarantee of that in the future.

[J295]

@nexchap 

My EPD K-1 has a K-1 Code 99047 titled "Cumulative Passive Losses."

No sales of purchased units ever.

Where do I list these cumulative passive losses in the TT process?

Note:  There is a question asking as part of the K-1 asking if I have

a.  passive activity losses carried over from last year (check the box)

b.  at risk losses carrying over from last year (check a different box).

Do I check one of these boxes then continue?

[nexchap]

@J295 Code 99O47 is for your information only.  It doesn't need to be entered into TT.  It (and just about every other code in the K-1) is discussed in the last couple pages of the K-1.  There is a lot of info in there that may or may not apply depending on personal situation.

If you've used TT for your 2019 EPD K-1, then it will import the suspended passive activity losses from last year's return if you check that box.  If you didn't use TT, you'd still want to check the box to enter in whatever you have from past years.  The "at risk" losses refers to anything held on form 6198, which would show up the first year you tell TT you don't have investment at risk.  If that was in a prior year, you'd want to check that box too.

[J295]

As always thank you @nexchap 

I did read the attached info in full before posting, but don't fully grasp all of it so appreciate your ongoing support.  By the way, I don't know if anyone else noticed but on this year's 2020 form in the explanation language it was referring to the year 2019 rather than the year 2020 in multiple parts of the descriptions.  Guess they did a copy and paste without updating the year.  

[Willard131313]

I reported the sale per the instructions

I sold out of the position

After finishing the interview and entering data the program now shows that all taxes I paid this year state and federal will be refunded.

Is this because I sold at a loss after adjusting cost basis?

[nexchap]

@Willard131313 That's very difficult to answer without a lot of detailed data about your taxes.  But there are a couple ways you can review your forms to answer it.

1. Its easy to experiment with TT.  Make a copy of your tax file, and then play a little.  Do a version with everything EXCEPT the MLP entries, and then another version with the MLP entries, and look at exactly which lines and forms changed.
2. Look specifically at forms 4797, Sched E, and Sched D and the entries coming from your MLP.  Sometimes this can be a little trickier than the first method, since its not always obvious where some of the MLP stuff lands.

Either way, I'd suggest digging into it to make sure you understand why you got your results.  I've found that TT's automation makes some parts of tax prep truly simple, with little need need for detailed verification.  Unfortunately, MLPs are not one of those areas:  you can definitely get correct results with TT, but it requires the same attention to detail that you'd use if you were filling out each form yourself.

[Willard131313]

I am using the online version and you cannot view forms.

What I can see is TT is showing a large negative number on Line 8 of the 1040 (other income from schedule 1 line 9

Other income from Schedule 1, line 9

[MJ2499]

Thanks very much, @nexchap  I appreciate it. I understand. It only allows the loss (and there was plenty of that) to the extent of the gain, which is why the loss equals the gain.

Lastly, in regard to the 1099B basis adjustment for the partial sale. There are several ways to adjust this. One is simply going to the 1099B in the interview and manually adjusting the basis. This is what I did because it was coded as "basis not reported to the IRS." Another is going to Forms and using what you call line 7b to adjust. Another is to use the interview in TT and check the box that says the basis is incorrect, and put the correct basis. TT will code this I believe as "O" for other adjustment, or something like that. 

Assuming that the broker reported the basis on the 1099B as "not reported to the IRS," isn't the easiest way to go into the interview and the specific 1099B item and manually change the basis to the correct basis per the calculations from the K-1 and sales schedule review? Is there anything wrong with doing it this way?

Thank you very much! 

[nexchap]

@MJ2499 Definitely nothing wrong with adjusting in the interview.  I just tend to use Forms often enough when working with MLPs that that's the way I wrote the answer.  But whatever works best in your workflow.

[nexchap]

@Willard131313 I believe the online version will still allow you to "print" your return (print to a pdf) with all the worksheets.  That's not as convenient as 'Forms' mode, but may still get you to the answer.  However you do it (even if that means switching to the desktop version so you can go into Forms), I'd be very hesitant to ever handle a MLP in TT without verifying that the numbers from the K-1 have gone through the return in the correct way.

With that said, its definitely possible for a MLP to lower your tax bill.  A capital loss on Sched D will offset other capital gains.  The suspended losses released on a complete sale (Sched E) may exceed the Ordinary Gain (Form 4797) and offset other income.

But its also possible for TT to lower your tax bill because a mistake was made in entering the K-1 info.  So best to verify.

[Willard131313]

The only thing I can figure is that the passive losses have reduced other income but I will try to convert to the off line version.

Do you know if the online will download into the hard copy or will I have to start all over.

Thanks for your insight.

[nexchap]

I believe you can convert.  This thread may help:  https://ttlc.intuit.com/community/choosing-a-product/help/how-do-i-switch-from-turbotax-online-to-th...

[PSmith1260]

@nexchap 

nexchap - thank you so much for all the great work and guidance on this very difficult topic for many of us. 

My question is related to a question in the K1 interview section for a complete disposition of MLP shares.   

I did a complete disposition on about a half dozen MLP's in 2020 that were purchased in 2019.   Most of them has 2019 losses that were suspended.

There is a section that asks "Any Qualified Business Income (QBI) Carryovers?"  It then asks you to enter any QBI passive losses or at-risk carryovers as follows:

QBI suspended loss - passive

Form 4797 short term suspended loss - passive

Form 4797 long term suspended loss - passive

QBI suspended loss - at risk

Form 4797 short term suspended loss - at risk

Fork 4797 long term suspended loss - at risk

In some cases TT seems to be populating this on its own and in some cases it is blank (not populating).   In one case I know there was a 2019 passive loss suspended that did not populate the QBI suspended loss - passive in this section.  

Can you offer any insight or help on this.   Should this section of the interview populate automatically by TT with the suspended losses and if not does that mean the loss cannot be claimed in this section?

Thanks so much.

PSmith1260