Reporting capital gains on an MLP once basis drops below zero

[LM232]

I switched from TaxCut to TurboTax because TurboTax is able to handle a 1065 k-1.  I have several MLPs I intend to hold for years.  I know distributions don't count as income, but rather are return of capital and are to be used to reduce my basis in each stock.  Once my basis drops below zero, any further distributions will be counted as capital gains. Does TurboTax take care of all this, or do I have to know when my basis drops below zero?  If I have to do it, will TurboTax guide me on how to enter the capital gains?  I sold 2 MLPs in 2022.  My broker showed normal capital gains between my original basis and my sale price, but  when I put my K-1 for the year into TurboTax the program didn't even ask if I had sold the stock. It is beginning to look like I will have to stop doing my own taxes and start paying a tax professional.

[GeorgeM777]

No, TurboTax will not track your basis in the MLPs.  Therefore, you will have to separately track that basis as it changes in connection with various distributions. Yes, TurboTax will guide you as you enter your gains from your MLPs, but the gains are entered in one section of TurboTax and your Schedule K-1 information is entered in another.  For example, if you were using TurboTax CD/download, you would follow these steps when entering your MLP gains and to adjust your cost basis:

1. After opening the application, select the Personal tab.
2. Select the Personal Income tab.
3. On the next screen you will see the option to Walk me through everything, and the option to I'll choose what to work on.  Select the latter.
4. Scroll down the screen to Investment Income and select Stocks, Mutual Funds, Bonds, Other.  
5. On the next several screens, you will be prompted to enter some basic information about your brokerage account including the option to upload your 1099-B. 
6. After entering the preliminary information, continue through the application until you reach the screen, Select any less common adjustments that apply.  
7. One of the options on the above screen is The cost basis on my statement is incorrect.  Select this option and you will see a field where you can enter the corrected cost basis. 

If you are using TurboTax online, the process to enter your MLP gains begins with selecting Wages & Income (left margin).  Then, follow these steps: 

1. On Your Income and expenses screen scroll down to Investment and Savings.
2. Click on the drop-down arrow if necessary to reveal more options.
3. Click Start/Revisit across from Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B).
4. Thereafter, you can enter your information.  You will see a field for Cost or other basis, and you can enter your original cost basis.
5. Continue through the application, and you should see the screen, Adjust your cost basis to ensure your best outcome.  It is here where you can select the option, I found my adjusted cost basis, and then enter your adjusted cost basis in the appropriate field. 

[Mike9241]

I'll point out one thing you have to be vary of should you sell the MLP and IRC section 751 comes into play. that basically is depreciation recapture.   what happened to me on one MLP help about 10 years was I got the suspended loss deduction but that was more than offset by the751 recapture. for each $1 of suspended loss there was $4 of income recapture. the longer you hold them the higher this differential could be. the effect of the 751 recapture is to reduce capital gain or increase capital loss on the sale  because the 751 amount adds back to tax basis for figuring capital gain/loss.  in my case it put me into a higher tax bracket. NOT ALL MLPS HAVE 751 RECAPTURE 

[LM232]

Thanks. So if I sell the stock before my cost basis drops to zero, I follow your instructions below (I do use the CD/Download version).  What do I do once I reach the point where my basis is zero?  At that point I'm supposed to treat any further distributions as capital gains.  Is that something I have to worry about each year, or do I wait until I sell the stock and figure out a negative number as my basis?

[PSmith1260]

I have the same question as have 2 MLPs that will go to zero basis this year.  Once that happens how do you record the distribution in TT as a capital gain distribution?   Does TT somehow handle this or is it a manual entry?  If manual, how?  Thanks in advance.