K-1 MLP Sale Mess- Help!

[drennman]

I know there are a lot of questions around K-1's for MLPs.  So here's another one.  

I sold an MLP in 2021.  It's reported on my 1099-B.  I know that the cost basis is wrong and I need to adjust it per the K-1 package.  Fine.  

1.  TT autogenerated another 8949 for the sale marking it as a transaction NOT reported on a 1099-B.  It obviously is reported there.   How do I get rid of this 8949? Deleting it does not work?  I can't change the designation of F(not reported on1099B) to E(reported on 1099B w/o cost basis).  

2.  The TT Partner's Share of Income Credits etc (K-1) Section C shows this as a non-passive loss for Schedule E.  But as an investment for me it is a passive loss.   Is Section C right (e.g. it's non-passive)?  

3.  The K-1 package tells me to enter a number in Form 4797 Part II line 10 but no entry to that line/form is allowed by TT.  Where does that value  get pulled from in TT?

4.  I am also instructed to enter a value on Form 6251 line 2k but likewise I can't enter any info there.  Where does that come from?

5.  The MLP K-1 has the box checked in Part III line 16 (schedule K-3 attached if checked).  TT is marking that an an error, because I have no K-3??  There is no K-3 on TT Premier.  I find the K-3 on the IRS site but I have no idea what to do with that and the K-1 package is silent on this (other than the box being checked).  Should I leave it checked or uncheck it?

Using Form View (not Easy Step.  Thanks to experts for their help!

[Mike9241 · Accepted solution]

in your k-1 package there is a supplemental sales schedule that you need to use to figure the capital gain and ordinary income from the disposition. i hope this was a total disposition because if not things become more complicated

1. TT autogenerated another 8949 for the sale marking it as a transaction NOT reported on a 1099-B. It obviously is reported there. How do I get rid of this 8949? Deleting it does not work? I can't change the designation of F(not reported on1099B) to E(reported on 1099B w/o cost basis).

evidently, you entered the entire 1099B info for this PTP in the sales section of the K-1. this is a no-no you'll be doubling up since the amount will also be reported from on form 8949 from the 1099-B import

in the 1099-B imported section you change the cost to what was computed in the sales schedule

2. The TT Partner's Share of Income Credits etc (K-1) Section C shows this as a non-passive loss for Schedule E. But as an investment for me it is a passive loss. Is Section C right (e.g. it's non-passive)? when you dispose of a passive activity passive flips to non passive

3. The K-1 package tells me to enter a number in Form 4797 Part II line 10 but no entry to that line/form is allowed by TT. Where does that value get pulled from in TT? see below

4. I am also instructed to enter a value on Form 6251 line 2k but likewise I can't enter any info there. Where does that come from? if you are not in AMT ignore it 

5. The MLP K-1 has the box checked in Part III line 16 (schedule K-3 attached if checked). TT is marking that an an error, because I have no K-3?? There is no K-3 on TT Premier. I find the K-3 on the IRS site but I have no idea what to do with that and the K-1 package is silent on this (other than the box being checked). Should I leave it checked or uncheck it? ignore the k-3 per IRS revised instructions. it won't be out until much later this year maybe even after 10/15. worse it will not affect your taxes.

now make sure you check the box for final k-1 and use the link to enter the disposition info.  you do not enter the 1099B here. that's what will create code F.

the only item reported in the k-1 sales section despite whatever TT posts at the top of this section is the ordinary gain from the sales schedule

for sales proceeds enter only the amount indicated as ordinary income from the sale schedule sometimes referred to as 751 income. cost 0

ordinary income enter the the sales amount.

if done correctly the ordinary income flows to form 4797 line 10 

[drennman]

THANK YOU!

Yes, I did correct the cost basis per the K-1 package on the 1099-B.  Great.

1.  I corrected the K-1 so that the 8949 F disappeared.  Great.

2.  OK correct that now shows "non-passive" income.  Great.

4.  OK I ignore as I don't have AMT (Form 6251).  Great.

5.  OK I ignore K-3 box check on K-1.  Great.

So that fixes most.  But...

Putting the  "Gain subject to recapture as ordinary income" on the K-1 does fill the 4797.  However, it looks like I am being double taxed:  once on the capital gain 8949 (Proceeds - Adjusted Cost Basis) and 2nd.  as ordinary income on Line 10 Schedule 1.

It seems to me that some of the "gain" from the sale is not to be taxed as Capital Gain but instead taxed as Ordinary Income. So somewhere I should be subtracting the Ordinary Income part from the 8949 Gain.  Is that right?

The K-1 Package tells me to enter it on Form 8949 Column G as a negative number.  I do that but it seems some code is needed to describe the adjustment?  And so the adjustment isn't implemented in TT.

Thank you again.

[drennman]

Mike9241's Solution is great.  Just a small clarification of the answer:  your K-1 package will give you the Adj Cost Basis (on mine Cumulative Adjs to Basis is subtracted (well actually added as it's a negative number) from the Purchase Price/Original Cost Basis).

Subtracting that new Adj Cost Basis from your Sales Proceeds will give you the total gain.  However, this gain is divided between Capital Gain and Ordinary Income.  

As instructed:  do not enter the sale on the K-1 just the amount that is Ordinary Income.  As instructed that will flow through to Form 4797 and onto your Schedule 1 line 4.  

To have the Capital Gain calculated correctly on Schedule D (from Form 8949) you will need to add the Adj Cost Basis and the Ordinary Gain to get the correct amount to enter as the Cost Basis.  Then your total gain will be properly allocated between Capital Gain and Ordinary Income.  The point of the exercise is that both are taxed differently.

I have not said anything Mike9241 didn't say, just trying to provide some additional notes for those who may have the same question.