Schedule K-1 Sales Schedule

[Anonymous]

I sold all my shares of a PTP and received a Sales Schedule with the Schedule K-1.  How do I report the sale in turbotax.  Specifically, what do I enter as "Sale Price", "Selling expense", and "Partnership Basis" on the "enter sale information" page of the TT interview.  These items are not readily apparent to me on the Schedule K-1 Sales Schedule.

[nexchap]

Reporting the sale of a PTP is a combination of the typical 1099-B interview, and the K-1 interview.  If you did not have any Ordinary Income on the sale, then just enter 0 for everything on the K-1 and handle it through the 1099-B interview.  If you had Ordinary Income, this thread can guide you on how to enter it and not wind up with a double-reporting problem: https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/how-i-report-the-sale...

[Anonymous]

Is entering "0" on the K-1 Sale interview appropriate if my 1099-B reporting for the PTP sale was categorized as short and long term uncovered (vice covered).  Want to make sure it gets reported one way or the other (K-1 or 1099).  Thanks 

[Mike9241]

the sale can get entered in two places.   on the k-1 to the extent of any ordinary income (section 751 income) reported on the sales schedule.  in the k-1 sales section, you would report the 751/ordinary income as the sales price, cost 0 ordinary income = sales price. this will flow to form 4797 line 10

your broker has reported the sale on form 1099-B with either code B or E - meaning it didn't report the cost/tax basis to the IRS. the form would show the cost as what you originally paid which is no longer the correct tax basis because none on the PTO's activity was taken into a/c - simply the broker does not know what it is 

so the correct tax basis for the 1099-b (not on the k-1 section because you will double up on reporting) is computed as follows

a) what you paid/purchase  price  - before any adjustments - should be on the sales schedule

b) less cumulative reductions to basis ( this is for the ptp activity including distributions)

sometimes the sales schedule will report cost basis which is them doing the math a) - b)

otherwise, you do the math say a) is 263 and b) is -230 = tentative cost basis  33

 c) to cost basis you add the 751/ordinary income

the result is the corrected cost/tax basis fr form 1099-B/8949/schedule D

[nexchap]

@Anonymous Yes.  The only thing you're doing on the K-1 sales interview is making sure the Ordinary Income is reported correctly.  Unfortunately, TT doesn't just ask you for this number and put it in the right place.  They make you enter it as part of a sales screen, which forces you to go through the 0 (sales price) / negative number (partnership basis) gyrations.

Once that's done, you handle the actual sale in the 1099-B section, being careful to adjust your cost basis to the number that gives the correct Cap Gain/Loss

[Anonymous]

Thanks for taking the time with this.  Last question....I know where to find the original Cap Gain/Loss on the 1099-B, but where on the K-1 Sales Schedule do I find the actual "correct" Cap Gain/Loss.  Do I adjust the 1099 Cap Gain/Loss based on the Column 5 "Cumulative Adjustments to Basis" on the K-1?  

[nexchap]

@Anonymous You calculate your Cap Gain/Loss using the Sales Schedule that came with the K-1.  Because your broker doesn't see the K-1, the cost they report is wrong.  You have to change it in the 1099-B interview.

The correct cost is worked out on the K-1 Sales Schedule (not the TT interview -- the schedule itself).  You take your original purchase price and reduce it by the "cumulative adjustments to basis" on the Sales Schedule.  Let's say that gives you $100.  If you sold for $300, you'd have a total profit of $200.  BUT, part of that $200 is being reported as "Ordinary Income", so that comes out and your Capital Gain/Loss is what's left over.  So say Ordinary Income is $40, then you'd have $160 in Cap Gain.

Or, your cost basis for the 1099-B is your [purchase price]+[Cum Adjustments (which is a negative number)]+[Ordinary Income].

[Anonymous]

nexchap, I'm using your formula below to get my new cost basis but still don't think I'm doing it right.  It shows I owe more tax (even though I sold at a loss).  Can we use some actual numbers?

From 1099: 

ST Noncovered:  Proceeds $617 / Cost Basis $559 / Gain $58

LT Noncovered:  Proceeeds $5898  / Cost Basis $7814  / Loss -$1916

From K-1 Sales Schedule:

Units Sold 145 / Purchase Price $8372  / Cumulative Adjustments -$1659 /  Ordinary Income $1282

I understand from your replies that on the K-1 Interview I put $0 for Sale Price / Selling Expense and / Partnership Basis.  Then $1282 for Ordinary Gain.  Correct??

What is my new ST and LT Cost Basis for the 1099 Interview?

Thank you!

[nexchap]

@Anonymous On the K-1, you'd enter for sales, 1282 for Ordinary Income, and -1282 for Partnership Basis.  On the next screen, you'll see that this info causes it to calculate zero cap gain/loss.  But, you'll see the $1,282 show up on Form 4797 just like it should.

On your cap gain/loss, I'll combine ST and LT for a moment.

You sold for $6,515

You purchased for $8,373

Your total adjustments were -$1659

So your cost basis is 8373-1659 = $6,714

Your TOTAL profit/loss on the sale is 6515-6714 = -$199

That TOTAL loss of $199 is split into 2 pieces:  Ordinary Income of $1,282 and a Capital Loss of -$1,419 (this number just comes from -199-1282).

So you want your 1099-B to show a total loss of 1,419, which means you need a total basis of $7,934.

Make sense?

The final complication is that this is split between short term and long term.  Your Sales Schedule should have a column in it that tells you the % of the adjustment that is short term vs long term.  You'd have to repeat the process above for each piece, but the total will get to the same place.

[mlpinvestor]

Hi, @nexchap.  I’m attempting to follow your excellent instructions here, but I have hit a bit of a snag.  I’m filing a final return for a deceased taxpayer (my father) who owned an MLP that got bought out last year, just after his death.  There should be a step up in basis, since all assets reverted to his trust at death, but due to inopportune timing, the K-1 was issued in his name and SSN, and therefore does not reflect this.  There’s also no sales schedule provided that tells me what the adjusted basis should be, and he never kept track of it either.  So to avoid dealing with this, I’m hoping I can just use the market value on the date of death as my cost basis and go from there.  But this will create a discrepancy with what the K-1 says, since it lists an ordinary Section 751 gain that’s larger than what the entire gain would be under stepped-up basis rules.  Is this a problem I should be concerned with?

My thought was to just take the stepped-up basis and call the entire difference an ordinary gain, but I’ll defer to your recommendation.

Separately, I also have a final K-1 for some other shares in a different MLP that converted to a C-corp.  The newly-issued shares were a like-for-like exchange with the old ones, with the same cost basis.  However, my final K-1 also shows that same amount in Box 19C - other property.  Should I enter this box into Turbotax?  I don’t know what it will do with it.  Will it try to classify it as taxable income?  Obviously, it shouldn’t be.

Thanks a lot.

[nexchap]

@mlpinvestor My condolences on your father's passing.  With regards to his K-1, I haven't worked through the mechanics or tax implications of K-1s at death, so don't want to mislead.  My intuition is to contact the MLP / K-1 preparer, and request two K-1s:  One for the period 1/1/21 until his death, which is when the partnership needs to be officially re-titled into his trust.  Then a 2nd one, for the period from then until the sale.  That 2nd one will have the correct basis, ord gain, and any other items of income or loss that need to be reported.

Note that its probably worth posting a separate question specifically on how the step-up should work, since I'd assume (but don't know) that the suspended losses are wiped out.

On the MLP that converted to a C-Corp, TT doesn't do anything with the line 19 entries, so entering it isn't a problem.  But you still have to report the conversion.  You do this by essentially thinking about the transaction in 2 parts:

• You sold the MLP for cash (reporting a complete disposition in TT)
• You immediately used that cash to buy stock in the new C-Corp (nothing to report, but setting your basis in the new stock)

[Mike9241]

sorry for your loss here's a link to a thread by @tagteam that discusses what happens to suspended PALs at death https://ttlc.intuit.com/community/business-taxes/discussion/use-of-suspended-passive-activity-losses...  

[mlpinvestor]

@nexchap and @Mike9241,

Thanks a lot, both of you.  And for the condolences.  Your advice in this and other threads has been extremely helpful to me.  I got a similar answer in an earlier thread concerning the need for two k-1s, but I'm still unsure.

The thing that gets me is that the K-1 says “DECD TTEE,” so evidently Wells Fargo (Dad’s brokerage) informed the partnership that the partner had passed.  In that case, why didn’t they issue two K-1s in the first place if that’s what they were supposed to do?  They were given the information.  Dad’s trust was a standard living trust with him as trustee, meant to continue on with me as successor trustee after his passing.  The partnership already had it recorded that way.  So the only thing missing would have been a new EIN for the trust itself (which I eventually got) once his SSN was no longer valid.

Since the asset transfer into a new, non-individual trust account hadn’t yet been finalized by year end, I had assumed it would be okay to report the MLP on his individual return for the full 2021 tax year—because it was still held under his SSN in the living trust account until early 2022.  Unfortunately, the problem for me now is that I received notice of this redemption only after I’d already filed the fiduciary tax return for my father’s trust.  This return included all income reported or reclassified under the new EIN.  Moreover, I had already issued beneficiary K-1s to the trust beneficiaries (myself, my sisters, and my son) and they had already filed their taxes accordingly.  So amending all of that would be a considerable hassle over a small amount of tax.

In any case, I was able to get an extension for Dad’s final individual return, pending resolution of this.  Can I just report the sale there and combine everything, or is that a bad idea?

Thanks again.

[nexchap]

@mlpinvestor I can't explain why the K-1 provider didn't issue 2 K-1s, other than a suspicion that they default to simple (everyone gets a single K-1) and then handle everything else on request.  As to amending 2021 or not, remember that the IRS gets a copy of the K-1 from the partnership.  Whether they'd ever notice a discrepancy is impossible to guess, but I'd suggest doing the calculation on what the "correct" tax return looks like so you know the amount that would be in question.  Then you can decide whether to amend everything, or just respond if an IRS inquiry ever shows up.  As always, this isn't legal or tax advice, or even anything that should be considered more than random musings.... 

[mlpinvestor]

@nexchap ,

I completely understand.  Thanks so much for you advice.  Can I prevail upon you one more time concerning a completely different K-1 from another MLP sale?  I pretty much understand the method you’ve described here for dealing with ordinary gain/capital gain and entering that into Turbotax, but I’m unsure what I should do with the other amounts included on the K-1.

Specifically, Box 19A (distributions) shows a total of $23,054, of which $22,010 are sales proceeds for which I’ve calculated the gain as you’ve described, and $1,044 are the quarterly distribution payments received during the year.  Since we’ve already figured the capital gain, should I even enter anything into this box at all?  I also have $5,009 of “other income” listed in box 11F, and $5,285 of “net long-term capital gain” (attributable to the partnership, I assume) in box 9a.

Should I enter any of these in the K-1 interview process?  Or are all of these amounts just subsumed into the gain on the sale?

Thanks again.