How do I report the sale of Publicly Traded Partnerships (PTPs) or Master Limited Partnerships (MLPs) in TurboTax?

Publicly Traded Partnerships (PTPs) are unique types of investments that combine the tax benefits of a partnership while allowing investors to buy and sell shares, similar to traditional securities. Master Limited Partnerships (MLPs) are a specific type of PTP that is typically found in the energy and natural resource sectors. These investments are an attractive option for investors seeking both liquidity and pass-through taxation, which helps avoid the double taxation that corporations face.

The tax treatment of PTPs involves several key transactions. Ordinary business income or loss is reported in Box 1 of Schedule K-1. Interest and dividend income is reported in Boxes 5 and 6, and capital gains are reported in Boxes 9a and 10. These amounts must be included on the partner’s individual tax return. 

While these transactions may seem straightforward, there are some special tax considerations that come along with PTPs. Two of these considerations are passive activity limitations and unique treatment of distributions. Understanding these rules is essential for investors to accurately report income.

• Form 1099-B: If PTP units are sold, the brokerage will issue a Form 1099-B. This form reports sales proceeds, cost basis, and other details.
• Form 4797: When selling interest in a PTP, this form is used if any portion of the gain is classified as ordinary income instead of a capital gain. Report this ordinary gain adjustment from Schedule K-1 in Part II, Line 10(d) of Form 4797. 
• Form 8949: This form is used to adjust the cost basis from Schedule K-1. The cost basis of a PTP can be adjusted over time due to distributions, allocated income or losses, and capital contributions. Amounts from this form flow to Schedule D.
• Schedule D (Form 1040): This form is used to report the sale of the PTP units. Gains and losses must be adjusted for depreciation recapture and suspended losses as reported on Schedule K-1.

1. Sign in and open or continue your return.
2. Go to K-1.
3. On the Schedules K-1 or Q page, select Yes.
4. On the Did you receive any Schedules K-1? screen, select Yes.
5. Select Start next to the type of Schedule K-1 form you have (Form 1065 for partnerships), and enter your information. 

1. Open TurboTax and continue your return.
2. Select Search Topics. Search for and select K-1.
3. On the Schedules K-1 and Schedule Q screen, select Yes.
4. Select Start next to the type of Schedule K-1 form you have (Form 1065 for partnerships), and enter your information.

1. Confirm the partnership's Employer Identification Number (EIN) and other relevant information as shown on your Schedule K-1.
2. Check the box for This partnership ended in 20XX.
3. Select Complete disposition or Disposed of a portion…
4. Select Sold Partnership Interest.
5. Enter original purchase and sale dates.
6. Enter Sales information from Schedule K-1 Supplemental Information.
   Note: Since you received a 1099-B for this transaction, it's important to make sure $0 of Capital Gain is reported on the K-1, as follows:
   1. Sale Price = zero 
   2. Selling Costs = zero or leave blank
   3. Partnership Basis = amount of ordinary gain from Supplemental Info multiplied by -1 (i.e.: reverse the sign).
   4. AMT Basis = amount of ordinary gain for AMT from Supplemental Info multiplied by -1 (ie: reverse the sign).
   5. Ordinary Gain = gain/loss per Supplemental Info.
7. On the screen "Review Investment Gain or Loss on Sale," verify that this screen reports all zeros. This is the expected outcome if your entries are correct.
8. Enter amounts from each box on your Schedule K-1.
9. Carefully enter data based on the boxes:
   • Box 1: Ordinary business income/loss.
   • Box 20 (Code 2): Section 199A information.
   • Passive Loss Carryovers as negative numbers (regular, AMT, QBI).

1. Navigate to the 1099-B section:
   • TurboTax Online/Mobile: Go to 1099-B.
   • TurboTax Desktop: Search for 1099-B and select the Jump to link.
2. Follow the onscreen instructions. When you reach the Let's import your tax info screen, choose how you want to enter your 1099-B:
   • To import your form: Select your brokerage or financial institution from the list. Enter your sign-in credentials for your account, then select Get my form.
   • To enter your 1099-B manually (recommended): Select Enter a different way, then select your investment type on the next screen.
3. On the following screens, answer the questions about your 1099-B. When you reach the Review your sales screen, the form you just imported should be listed.
   • Otherwise, to add another 1099-B, select Add investments. Or select Continue.
4. Enter the details from your 1099-B:
   Note: If the K-1 Supplemental Information has separate long-term and short-term sales, allocate the 1099-B information between the two, using the percentages provided on the K-1 supplemental info.
   • Long-term/Short-term basis not reported.
   • What investment did you sell [Stock (non-employee)]
   • Description: "Sale of [PTP/MLP Name] Units."
   • Date acquired & sold.
   • Proceeds from sale (portion for this section, if allocating, total if not).
   • Cost basis:
     From K-1 Supplemental Info: Original Cost plus/minus Cumulative basis adjustments plus/minus Ordinary Gain/Loss from Section 751.
     Example:
     Original Cost = $100,000
     Cumulative adjustment to basis = ($20,000)
     Ordinary Gain = 15,000
     Adjusted Cost Basis to enter = 100,000 - 20,000 + 15,000 = $95,000
   • No special situations.
   • Result should equal Capital Gain/Loss from K-1 Supplemental Info.
   • Add another sale for short-term, if allocating.

TurboTax will report the capital gain or loss on Schedule D (Part I - Short-term; Part II Long-term) and ordinary income on Form 4797 Part II Line 10.