Schedule K-1 Sales Schedule

[nexchap]

@mlpinvestor 19A can be entered into TT, but it doesn't affect your taxes.  But its important information because it affects your basis.  11F and 9A are both handled by TT.  Enter them, and you'll see your taxes increase.  They also lower your basis.

Essentially, for any K-1, best practice is to enter everything into TT and then use Forms mode to double-check that TT was able to automatically process it (you can see this in forms mode, because some entries have an * telling you "Not provided for in program").  This will basically ensure that TT has the chance to use everything on the K-1 that should flow through your return.

The trickier part -- the part that TT doesn't make any attempt to handle -- is tracking your basis in the partnership.  That's why handling sales, or situations where basis drops to 0, trips up everyone who's hoping that TT will completely automate tax prep. 

[mlpinvestor]

@nexchap  I suppose what I’m trying to ask is, are all these adjustments to the cost basis already included in the “cumulative adjustments to basis” column in the sales schedule, or are they additional?  The procedure you recommend is to adjust the cost basis on the 1099 to account for all non-ordinary gain, so I’m just trying to avoid any double-counting while doing that.  When you declare your capital gain, and also enter the various amounts in the boxes that affect your basis, what does Turbotax do with that other information?  Will it figure the tax twice?  It appears none of the gain on this sale is ordinary, so that at least simplifies things a little.

I think I just need to know if I should still enter everything in Part III just as it appears, or if the approach you recommend in this thread implies overriding some of the info in those boxes.   Does that make sense?  Thanks again, again.

[Mike9241]

the cumulative adjustment to basis column includes profit, loss and distributions but not the ordinary income from the disposition.

the sales schedule would likely have your original cost to which you add/subtract the cumulative adjustments to basis and add any ordinary income recapture. this would be your adjusted tax basis for determining capital gain or loss. some sales schedules do part of the math by having a column called cost basis which is the purchase price + the cumulative adjustments to basis (the total may be off a little due to rounding) so all you need to add is the ordinary income recapture

generally, the broker's statement only reports what you paid when you purchased it so it will not reflect tax basis. most likely its type on the 1099-B is b or e - cost basis not reported to IRS for this reason

to report correctly  only the ordinary income is reported through the sales part of the k-1.  the actual sale needs to be reported on form 8949 after taking into account all adjustments to basis

[nexchap]

@mlpinvestor There's two things going on with a K-1:

1. The partnership is passing all their taxable events on to the partnership, so you can report them to the IRS and pay tax.  You do this in TT by entering all the K-1 info and letting TT take care of reporting it in the right spot.
2. You're getting the info you need to adjust basis, which only becomes relevant from a tax standpoint when it either reaches 0 or you sell.

When you sell, the partnership is giving you the overall summary of all the basis adjustments (including anything reported on the current K-1) on the Sales Schedule.  Enter all the K-1 info as normal.  Then use the Sales Schedule to figure basis and cap gain.

[mlpinvestor]

@nexchap @Mike9241 

Another year, another MLP sale to enter.  Let me reconfirm my understanding of your method, one more time.  I have cumulative adjustments to basis totaling -$1,636 and $1,061 in gain subject to recapture as ordinary income.  This latter is shown as section 751 gain, which I entered as Box 20 code AB.  One question I have is, will Turbotax send this amount to ordinary income just by entering it in the Box 20 Information page, or do I need to manually go in and add it somewhere, like in the ordinary business income (box 1) or short-term capital gains boxes (box 8)?

From what I remember about the workaround method, I need to net the cumulative basis adjustments against the original 1099B cost basis to figure the total gain or loss.  Subtracting this adjusted basis from the original purchase price gives the capital gain, which for me is 100% long-term.

The 751 portion is a short-term gain and is separate from the adjusted basis, i.e. it represents an additional tax owed.  So I enter the 751 part in the K-1 section and the capital gain part in place of the broker’s 1099B figure.  All correct?  The confusing thing about it is that the phrase “gain subject to recapture as ordinary income” makes it sound like this is a fractional part of the capital gain on sale calculation above, rather than being its own tax item.  So you have short-term gain (if any), long term gain, and finally 751 ordinary gain, all separate things.  Right?

Also, as this was a partial sale this time, I understand that suspended losses remain suspended, but capital gains must be recognized.  However, one thing I’m not completely clear about is whether the cumulative basis adjustments only reflect the capital gain on the units I sold, or whether it also includes adjustments representing unrealized gains on the remaining units as well.  If so, how should I separate the two in order to recognize only the realized gains at this time?

Thanks much, again.

[Mike9241]

for the most part Turbotax uses nothing in box 20.  this ordinary income must be entered in the sub worksheet for the disposition of your interest. it is not entered directly through the k-1.

this ordinary gain is part of the capital gain calculation because it is part of your tax basis for gain

original cost

+/- adjustments to basis

+751 gain

= tax basis for capital gain calculation.

I'm starting to see some supplemental sales worksheets already have a column for adjusted basis before the 751 gain.  it varies from PTP to PTP

look at the sales worksheet it describes what is included in each column. the sales info should only reflect the items affecting the shares you sold 

[Mike9241]

No No the 751 portion is not short-term capital gain it is ordinary income which is different. 

Turbotax does not use box 20 for the most part. those that apply have to be entered somewhere else in Turbotax. Like royalty depletion which must be entered on schedule E.  QBI information that must be entered later as you go thru the k-1 entries.   the only reason to enter a 20Z item is so Turbotax asks about QBI later  

[mlpinvestor]

@Mike9241  Oh, I see.  Thanks for clarifying.  I guess my problem here is that I'm using Turbotax Business, doing the taxes for a trust.  In Business, there is no section for PTP dispositions.  As in, it doesn't exist.  At all.  They completely left it out.  Premier has it, but Premier doesn't do trusts.  So where else would you suggest I report the 751 portion in turbotax Business?  Should I add it to box 1, or box 8?  Or maybe stick it in the short-term capital gains box on the 1099B interview?  Does it matter?  Thanks again.

[Mike9241]

i can't be 100% positive but I think the trust should have the same results as an individual. that 751 is deprciation recapture which applies to trusts. so what i would do is enter a second k-1 for and for its name use something like 751 income from xyz partnership line 1 or 2 whichever is used on the actual k-1. this is an attempt to avoid a matching problem if the iRS tries to match the income you're reporting with the k-1 it gets. 

[mlpinvestor]

@Mike9241 Thanks a lot, Mike.  Your help has been valuable.  I have one more question.  One of the partnerships in this trust was transferred in-kind to an individual beneficiary last year.  The resulting final k-1 for the trust records it as a complete disposition, with the attendant basis adjustments and 751 income amounts, and then a new basis in the hands of the beneficiary (per their own k-1).  However, the broker has it still showing up in the recipient's account with the original cost basis fully intact, since an in-kind transfer was what was actually requested to be done.  Which way is correct?

Thanks again.

[RobertB4444]

Your broker is correct.  In an in-kind transfer the basis transfers with the property.

@mlpinvestor