Sale of LP entered in interview shows "Gain subject to recapture as ordinary income" appears on form 8949 as "Cost Basis"

[mwren7744]

I went through the interview to report the sale of a limited partnership. I entered Sale Price 13779, Partnership Basis 0 (can't be negative) and Ordinary Gain 11241. My K-1 Sales Schedule says the gain should appear in form 8949 Column G and in form 4797 line 10. It appears correctly in form 4797. However, the from 8949 shows  Proceeds of 13779, cost of 11241 and Gain (column G) of 2538.

Is Turbo Tax putting data in the wrong place?

[nexchap]

Getting this right in TT is tricky, since its a combination of the K-1 interview and the 1099-B interview. Briefly, in the K-1 interview you want to enter 0 for the sales proceeds, and a negative number (inverse of the Ord Gain) as the partnership basis.  Partnership basis CAN be negative on this interview, since all its doing it figuring out what to populate elsewhere.  Then, adjust the 1099-B entries to arrive at the correct Cap Gain/Loss.

This thread is a longer discussion of why all this works:    https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/how-i-report-the-sale...

[Mike9241 · Accepted solution]

I went through the interview to report the sale of a limited partnership. I entered Sale Price 13779, Partnership Basis 0 (can't be negative) and Ordinary Gain 11241. My K-1 Sales Schedule says the gain should appear in form 8949 Column G and in form 4797 line 10. It appears correctly in form 4797. However, the from 8949 shows Proceeds of 13779, cost of 11241 and Gain (column G) of 2538.

Is Turbo Tax putting data in the wrong place?

on the k-1 side the sale info you report is only the ordinary income  - the 751 income of 11241

that's the sales price cost is zero ordinary income is the sales price 

this flows to form 4797 line 10.  evidently you did this correctly

yes, the sales schedule may show a negative basis.   this may be due to distributions exceeding your tax basis which would result in capital gain.  another possibility there was partnership debt which increased your tax basis. say debt is $2000 which counts towards your tax basis and your capital a/c is a negative $2000.  your tax basis is $0. now you sell, the debt goes away which creates $2000 of income 

so if you have a negative cost 

your overall income is the $13,779 + the negative basis.  of which $11241 is ordinary and the rest is capital gain 

[GRE3]

Hi Nexchap -

Your explanation and method is very helpful. I have a partnership (ET - Energy Transfer) that I sold this past year that I am working on.

I have not been able to work out how to handle the basis adjustment on the 1099-B interview. I have a mix of shares sold: short term noncovered, long term covered, long term noncovered. I have a single average basis from my sales worksheet for ET. I don't know how to allocate that average basis across the different categories of shares sold. 

Where do I make the adjustment in basis to get from the amount provided on my 1099B to the average basis from the ET worksheet? And do I need to distribute that amount across the different sales?

The difference is quite significant, with the worksheet basis being much lower:

Average cost basis from ET worksheet: $1043

Broker provided basis for the bulk of the shares in the long term category: $7,817

Thank you!

[nexchap]

@GRE3 The K-1 sales schedule will include a "percentage long term" column, which will tell you how much of the basis applies to the long term shares, and how much to the short term shares.  But I'm not sure why you have "long term covered" shares for ET.  Typically, all shares of a PTP are non-covered because the broker doesn't have access to the K-1.  You may need to talk to them to find out why they've reported  the cost for those shares to the IRS.

[GRE3]

On the covered shares, I will have to dig into this some more but they a history of re-structuring the LLC - buying others or other "peer" LLCs that are part of the ET family. Honestly, it's been a huge pain dealing with this over the years and I am happy to see it gone from my portfolio, aside from having to sort out the current set of issues.

What I see on my brokerage statement in Feb 2013 is the a set of long term covered shares appears. The company has re-structuring announcements in that same month. I think what I am seeing now is that set of shares carried forward with some growth in shares (dividends) or mapped through other re-structuring events.

So back to the overall picture, I am thinking the following:

- small number of long term covered shares with reported basis: I assume I should not try to change that basis

- larger number of long term non-covered shares: I can update the basis to align with the corrected basis from ET. The percentage long term is 90%.

small number of short term non-covered shares: As above, I can correct the basis. This is 10%.

My sales worksheet reports (among other things), the following:

Average cost basis: $1043

Cumulative adjustments to basis: $-7,161

Do I calculate the long term non-covered basis as: $-7,161 * .9

And the long term covered basis as: $-7,161 * .1

Then use those to update the respective basis amounts from the broker for those sales?

And just to be super clear, these are negative numbers, so the basis I am entering is negative.

Thanks!

[nexchap]

@GRE3 Looks like a good approach.  On the adjustments, you’d use 7,161 * .9 as the adjustment to whatever your purchase price was.  So using the $7,817 mentioned earlier, you’d lower that by $6,444.9 to get a basis of $1,372.1