PTP K1 interest and dividend vs distributions

[Asia527]

Are the  interest and dividend listed on the line 5 and 6 of the K1  not the same thing as the cash distribution I received from the PTP throughout the year?  The interest and dividend is taxable and increases my tax basis?  The cash distribution I received is report under line 19A which I'm not taxed on but is used to reduce my tax basis?  Thanks!

[nexchap]

Most items on the K-1 (boxes 5 and 6, but also 1-3, 10, 13, 16, etc) do not reflect cash you receive.  They are items that you report on your tax return, and either pay taxes (e.g., 5 and 6) or get tax reductions (e.g., the loss in box 1).

Because these things are changing your taxes, and you didn't actually receive the money, your basis changes.  That ensures, when you finally sell, that the gain/loss you report nets out all these other items.  So items of income (like 5&6) increase your basis.  Items that you can deduct reduce your basis.

The partnership also gave you cash distributions (19A).  If those were taxed immediately they wouldn't affect your basis (because you got real cash, and paid tax).  But if they're not taxed, then they impact your basis just like everything else.  So in the case of ROC, which isn't taxed, you're basis would be lowered by the amount received.  ROC isn't taxed today, but you'll still pay Cap Gains on the amount when you eventually sell.

[Asia527]

@nexchap , thanks for the great explanation.  Just to confirm ny understanding, I should add line items 5&6 from each year that i received a K1 to my tax basis and reduce my basis by any reductions.  The cash distributions or ROC (line item 19A) I received each year will not be taxed now but does reduce my rax basis.  The amount listed on line 19A usually matches the total of 5&6, so it's really a wash.

Also, the proceeds from the redemption (non-voluntary) of some of my shares this share was also included in the line 19A amount, I pay capital gain on the redemption, correct?

Thanks.

[nexchap]

@Asia527 You're understanding is correct, though there's no reason 19A needs to match the total of 5 and 6.

Typically Section L of the K-1 shows the reconciliation of any changes in your 'Capital Account'.  Capital Account is not quite the same as basis, but for the purposes of understanding how your basis is changing its pretty close. 

• 'Capital contributed' is any purchases you made
• 'Current year net income (loss)' is going to match all the ups and downs that come from the K-1 boxes (excluding 19A).  You should be able to reconcile that each year.
• 'Withdrawals and distributions' will be any actual cash distributions you got plus the basis of any shares you sold.  I highlight the basis because it won't be the amount you received for the shares -- just the cost basis.

As to the forced redemption, you'd have to go back to the K-1 preparer or a tax professional to understand how that's being accounted for and where it goes on the tax return.