Schedule K-1 Sales Schedule

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-of-mlp-shares-in-turbo-tax-i-sold-all-shares/00/776624

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 

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

@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

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?  

@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].

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!

@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.

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.

@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)

sorry for your loss here's a link to a thread by @Anonymous_ that discusses what happens to suspended PALs at death https://ttlc.intuit.com/community/business-taxes/discussion/use-of-suspended-passive-activity-losses-in-year-of-death/00/2244098#:~:text=If%20there%20is%20no%20step-up%20in%20basis%20for,the%20decedent%27s%20final%20return.%20See%20http%3A%2F%2Farchives.cpajournal.com%2F1996%2F0796%2Fdepts%2Fet.htm%201%20Reply  

@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.

@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.... 

@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.

@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. 

@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.

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

@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.

@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.

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 

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  

@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.

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. 

@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.