Question

How I report the sale of MLP shares in Turbo Tax. I sold all shares.

Forum|Forum|6 years ago
June 7, 2019
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TurboTax Deluxe Windows

If all your shares were held long term, or short term, then you can just follow the prompts in the K-1 interview section. It will put everything in the right place, AND it will create a 1099-B for the cap gain/loss portion of the sale. I emphasize the "AND" because this is a problem if you also imported the 1099-B from your broker for this sale. In that case, you'd either want to delete the imported 1099-B, or set the cost equal to the proceeds so that there's no double-counting of gains.

However, if you happen to have both short and long term gains, you can't do this. And for the sake of completeness, if you happen to ever do this again with a partial sale, you also can't use the interview. Below is a longer answer that covers both those cases too.

MLP sales are a problem area for TT that they haven't addressed for years. There are a number of sale scenarios that must be dealt with:

1) Partial sales: In these cases, the capital gains/losses must be fully recognized. However, if you enter them during the K-1 interview they're treated as passive and suspended (for cap losses) or used to release past years suspended losses (for cap gains). Neither is correct.

2) Mixed short/long sales: The K-1 interview only allows one holding period. There's no way to split between long and short term gains/losses

3) Complete dispositions, all in one holding period: This is the only case where the K-1 interview works, but you still have to deal with the 1099-B that came in from the broker.

Because of all this, I handle all scenarios the same way:

Use the K-1 interview for the 'ordinary gain' portion of the MLP sale, but not the capital gain/loss. Do this by: 1) enter 0 for sales proceeds, 2) enter the ordinary gain numbers provided on the K-1. Note that there will be two ordinary gain numbers, one for Regular and one for AMT, and 3) set your basis as the inverse of the ordinary gain (for example, if ordinary gain was 100 (regular) and 90 (AMT), set basis as -100 (regular) and -90 (AMT). Doing this puts the ordinary gain into all the right spots on your tax return, but sets the capital gain/loss as $0 for both Regular and AMT.
Go the the 1099-B provided by your broker. There will be a cost they provide, which isn't reported to the IRS. This can be changed, so change it to whatever provides the correct cap gain/loss (you work out the cap gain/loss by using the K-1 worksheet).

This two step process handles all the scenarios above. Its unfortunate that TT doesn't provide an interview-based way to do this, because I'm sure many people don't notice the problems they're creating in their returns when they follow the existing interview. But until they do, this will work.

**Say "Thanks" by clicking the thumb icon in a post**Note also, I'm not a Tax Preparer/CPA. Just a volunteer, seasoned, TurboTax user. Use any advice accordingly!

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ngl0ml

When you say "2) enter the ordinary gain numbers provided on the K-1" do you mean the number in box 1 that says "Ordinary business income (loss)" e.g.: -9 or the number mentioned in the section "Ordinary Gain" e.g.: 16 of heading "Gain or Loss Classification" in "Sales Schedule" document

W

Willie12

Thanks for the info, but my situation is different. When I use the Sales Schedule provided by my publicly-traded Pipeline MLP to calculate my long-term capital gain, I get a LT Cap Gain greater than the sales price. Is this possible or is there a mistake in the Sales Schedule? If correct, how is this sale handled. I can't enter a negative cost. Thanks.

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nexchap

@Willie12 -- I think the only way that could happen is if your "Cumulative Adjustments" are more than you actually paid for the units. And if that's that case, you probably have problems in prior year returns.

Basically, your basis in the MLP can't drop below 0. While its above 0, you fill out your returns as normal. But once it hits 0 (which you have to determine yourself, based on your records -- the partnership does nothing to help here), you have to fill things out differently. And you also have to keep your own calculations on what your **bleep** Adjustments are.

This is where I suggest getting a CPA to help sort it out. The rules are complex and require tracking both your capital as well as your share of the MLP liabilities.

**Say "Thanks" by clicking the thumb icon in a post**Note also, I'm not a Tax Preparer/CPA. Just a volunteer, seasoned, TurboTax user. Use any advice accordingly!

D

devnull

@nexchap This seems to be my situation as well, where the Sales Schedule "Cumulative Adjustments to Basis" Column Total is a negative number (below 0 by a very large amount compared to the "Purchase Price/Initial Basis Amount" Column Total). Every transaction of these SVXY shares was purchased or sold in 2018, which consisted of 6 purchased lots and 9 batches of sales. The only data I have regarding these transactions are in my Ameritrade monthly statements, my Ameritrade 1099-B, and the Proshares K-1 packet. There are only a few boxes in the K-1 Part III section that are populated:

Box 5 = 151

Box 8 = 0

Box 11 = C -442,878

Box 13 = W* 203

Box 20 = A 151, B 203.

When I follow the Graphic Guide (instructions) included in the packet and plug these K-1 numbers in the TT interview mode, TT will populate the loss into Form 6781 but automatically splits the loss into 40% short-term and 60% long-term which does not negate the short term cost basis adjustment gains from the Sales Schedule, (thus making me owe a significant amount of taxes which doesn't make sense to me).

I don't know why TT is separating this loss and treating some of this as long-term since all transactions were done in 2018. How can I fix this or how do I go about entering the Sales Schedule data so TT deals with these sales correctly?

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Willard131313

I reported the sale per the instructions

I sold out of the position

After finishing the interview and entering data the program now shows that all taxes I paid this year state and federal will be refunded.

Is this because I sold at a loss after adjusting cost basis?

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nexchap

@Willard131313 That's very difficult to answer without a lot of detailed data about your taxes. But there are a couple ways you can review your forms to answer it.

Its easy to experiment with TT. Make a copy of your tax file, and then play a little. Do a version with everything EXCEPT the MLP entries, and then another version with the MLP entries, and look at exactly which lines and forms changed.
Look specifically at forms 4797, Sched E, and Sched D and the entries coming from your MLP. Sometimes this can be a little trickier than the first method, since its not always obvious where some of the MLP stuff lands.

Either way, I'd suggest digging into it to make sure you understand why you got your results. I've found that TT's automation makes some parts of tax prep truly simple, with little need need for detailed verification. Unfortunately, MLPs are not one of those areas: you can definitely get correct results with TT, but it requires the same attention to detail that you'd use if you were filling out each form yourself.

**Say "Thanks" by clicking the thumb icon in a post**Note also, I'm not a Tax Preparer/CPA. Just a volunteer, seasoned, TurboTax user. Use any advice accordingly!

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Willard131313

I am using the online version and you cannot view forms.

What I can see is TT is showing a large negative number on Line 8 of the 1040 (other income from schedule 1 line 9

Other income from Schedule 1, line 9

M

MJ2499

Greetings,

Being new to MLP stuff, I really appreciate your help. I've got MMP and EPD, relatively small positions, and the K1 state section shows a combined 40 states between the two, every single one with either "0" or a loss in box 1 (Ordinary Business Income or Loss). I know every state is different as to who has to file, and I'm okay with that. But let's assume even if I have a loss I want to file. The EPD instructions are pretty good for the state portion. So I paid the $45 for one of the states in TurboTax. But guess what, it's not at all helpful - essentially wants me to do the calculation myself. When I open a state Non-Resident return in TurboTax, in the intereview there is a state "Income Allocation" section, it simply asks me to list what amount of each of the major categories from my Federal return are attributable to that state. So for me, the only thing that is attributable to that state is the MLP income. And that goes in the interview category for "Rentals, Royalties, Partnerships, S Corps, Trusts, Etc." So I was hoping you might know what the correct amount for each state is to list. Specifically, if EPD's state information shows in that state's box 1 an ordinary loss of $41, and a Bonus Adjustment of $25 in box 2, does that mean I put a $16 loss down for that state? OR, do I use the Box 5 (Gross Receipts) which is $82. Seems to me that the state is looking for what % of my income came from their state's sources. In this regard, it seems that gross receipts (Box 5) is irrelevant. What they really want its income (or loss) and that must exclude federal bonus depreciation for non-conforming states. Would love to have your thoughts.

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nexchap

@MJ2499 Sorry, but I don't know enough to help with specific state questions: the adjustments to the Fed K-1 vary, the state rules for reporting the information vary, TT's level of automation in populating the state forms vary, and the ways to mess things up vary. I'm just not familiar enough with the details to offer anything useful.

I can offer that Gross Receipts is generally not relevant unless you need to deal with UBTI. The handling of bonus depreciation is to add the adjustment to whatever Fed number is transferred to the state, so in your example that non-conforming state would see -16 instead of -41. Its also worth noting that these Bonus Depr adjustments typically result in offsetting adjustments in Ordinary Income when you sell. I mention that only because it may be relevant when you have to work out how much Ordinary Income to report in a given state (depending on what the K-1 provides).

**Say "Thanks" by clicking the thumb icon in a post**Note also, I'm not a Tax Preparer/CPA. Just a volunteer, seasoned, TurboTax user. Use any advice accordingly!

C

clk3

@nexchap , you're help has been awesome, and just wanted to acknowledge. I have a disposition question that I'm 99% sure on, but figured worth asking you/others just in case. With regards to the normal recapture of ordinary income on sale, you're explanation has been very clear and helpful at the federal level. That said, would that ordinary income recapture also flow through as AGI at the State tax level even if the partnership does not operate in that state (in my case, NY)? Or, does it generically flow through the same way any other investment income would (eg dividends)? I'm assuming the latter, but obviously don't want to pay state taxes if not required... Any thoughts appreciated

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Bruce52

If you follow the input forms correctly you will double report gains on the sale of a partial or full interest. The sale and cost data reported on the 1099 provided by your broker. The only material problem for owners of less than a few thousand shares is the loss carryforward in the individual partnership.

They should have a box that asks if this sale is reported by a broker on a 1099. In that case you should be able to click through the rest of the sale info and simply adjust the basis on Schedule D.

P

PAGB

Thanks to everyone for this thread and specially @nexchap

I'd like to make sure I'm doing everything correctly so appreciate any help.Some background.

For the Stocks section of our taxes we do a Summary for Each Category (we do not import). We use another software (due to large number of transactions and to correctly calculate wash sales) to generate our 8949 and then attach the pdf file to our return.

We received a K-1 because we bought ETF (exchange traded funds) shares (PTP) on the stock market, we actually didn't know it was a Partnership. All shares were bought and sold last year so the Year End Shares are 0.

This is a Final K-1

Box 11 (code C) is a negative number. All other box are either empty or zero(boxes 5, 8, 20 and13)

And I have no Ordinary Income anywhere on the Schedule.

Since the sales are already being included in the 8949 and Summary, this is what I've done so far in the interview for K1:

Describe the Partnership ( I've checked) : This is a Publicly Traded company and This Partnership Ended in 2021

Describe Partnership Disposal (I've Checked): No Entry

The reason I've chosen No Entry is that if I've been told if I check Complete Disposition then TT will ask me for sales info and since the info is already included in my Summary For Each Category and the details are on my 8949 the Complete Disposition option would create duplicate problems (like another 8949). I'm aware that I have to adjust the cost basis for the 8949.

The next screens in the interview asks me about how much of the investment is At Risk. Since everything

has been sold it's 0.

So finally I end up at a Screen that says Deductible Loss may be zero (I don't why not 'definitely' and just maybe) and I have a non-deductible loss (=the amount in box 11) that will carry over for next year.

So basically what I think I'm doing is that the details of the sales have been reported on 8949, the cost basis has been adjusted so that the loss will not be included this year and the K-1 shows that there is a loss that will be carried over to next year.

Is this all and good with the IRS?

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nexchap

@PAGB I don't think this is quite right. I assume you got a sales schedule with the K-1, and it had an "Adjustments to Basis" entry that matched 11c? And you applied that to your cost basis in your 8949? If so, you need to make a couple changes in what you entered:

Check complete disposition. TT will ask you about sale info, but just enter 0s so it doesn't calculate any gain/loss. But this will trigger TT to release the 11c value to this year's return (which is what happens when you sell). And this will also offset the change you made to your cost basis
Check "All at risk", since it was when you held the investment. This will keep TT from declaring the 11c value as non-deductible.

That should do it.

**Say "Thanks" by clicking the thumb icon in a post**Note also, I'm not a Tax Preparer/CPA. Just a volunteer, seasoned, TurboTax user. Use any advice accordingly!

P

PAGB

@nexchap

Thank you for your response

"I assume you got a sales schedule with the K-1, and it had an "Adjustments to Basis" entry that matched 11c?"

Yes

And you applied that to your cost basis in your 8949? Yes that is the plan

---------------------------------------------------------------------------------------------------------------------

"Check complete disposition. TT will ask you about sale info"

The next screen asks for Sales dates:

Enter Sales Dates: Since these are stocks there are multiple buy and sells with different dates

Purchase Date: I've entered the Date of the First Purchase
Sell Date : I've entered the Date of the Last Sale

I'm not sure if this is permissible or correct ? But I don't know what else to do?

---------------------------------------------------------------------------------------------

"Check "All at risk", since it was when you held the investment. This will keep TT from declaring the 11c value as non-deductible."

When I did it before TT showed me a screen which said "....Your at-risk amount is generally the money you'd lose (or the debt you'd be liable for) if this partnership stopped operations tomorrow."

Doesn't this imply that none of my investment is at risk?

P

PAGB

So we're a little confused what numbers from our K-1 should match the info on 8949

All ETF stocks bought and sold in 2021, Final K-1, PTP, only box 11 (code C) has an amount (negative) all the other boxes are zero

a

And also is the " Capital contributed during the year" in part L on K-1 show the total money we put in ?

Meaning should add up to the total purchasing price of all the "Buys"?

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nexchap

@PAGB There's actually not much (anything?) on the K-1 that's going to match your 8949 (Cap Gain/Losses). The partnership doesn't know what you sold for, so it doesn't list your sales price or try to calculate your Cap Gain/Loss. If it lists your purchase price, it might list your "Cost Basis". That would match the cost basis you use on 8949 IF you had not Ordinary Income (which is typically listed on the K-1 Sales Schedule).

And yes: Capital Contributed During the Year should match what you spent to buy into the partnership.

**Say "Thanks" by clicking the thumb icon in a post**Note also, I'm not a Tax Preparer/CPA. Just a volunteer, seasoned, TurboTax user. Use any advice accordingly!

L

luke622

Nexchap, thank you for being here. I don't know why TT can't make these things automatic...they should pay you;)

I have filled out my TT interview forms as you suggested but just had a philosophical question because something doesn't feel right. I used your formula for fixing my 1099-B to get my accurate capital gain for the sale of my MLP. Took Sales proceeds (from broker record) minus cost basis (box 6 on MLP sales schedule) minus ordinary income (box 7 on MLP sales schedule - gain subject to recapture as ordinary income). Is that correct?

My question is, on my sale had a $8K apparent capital gain based simply on purchase price and selling price. But after figuring in the revised cost basis, which reflected payment distributions received from the MLP that lowered my cost basis, that capital gain rose to $26k. However, when I then subtract the "gain subject to recapture as ordinary income," my final capital gain for tax purposes is only about $2k. That's what I don't get...I sold it for 8K more than I paid for it, and received thousands in dividends not previously taxed, yet my taxable capital gain is only 2K? How can that be right?

I guess my question is, why is the "gain subject to recapture as ordinary income" subtracted in order to figure capital gain for tax purpose? I'm just missing the rationale that appears to enable me to hide thousands in untaxed income I received. It just seems philosophically to me like my capital gain should be sales proceeds minus my adjusted cost basis, full stop?

Many thanks!

J

july007A

thank you for this thread. this has helped me a great deal

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naviator2003

@nexchap Apologies in advance for long question, but you appear to be the go-to person for this. As such, would LOVE some hand-walking for my situation.

I bought and sold shares in an MLP in the same year (2021). The short-term gains were reported on 1099-B, with Box B checked; TT is reporting the sales as Box B checked.

Question 1. Do I need to adjust the cost basis of the shares reported in the 1099-B?

I read your first few posts about how to log items in the Schedule K-1 interview, but am still perplexed. Here are my numbers from the Sales Schedule:

Purchase Price: 3,839

Cumulative Adjustments to Bases: -314

Cost Basis: 3,525

Gain Subject to Recapture as Ordinary Income: 255

AMT Gain/Loss Adjustment: 0

Question 2. What values do I enter for the Sale Information part of the interview?

Regular Gain or Loss

- Sale Price: ?

- Selling Expense: $0 (there was none)

- Partnership Basis: ?

- Ordinary Gain: ?

- 1250 Gain: $0 (there was none)

AMT Gain or Loss (I'm not in AMT territory)

- Partnership Basis: ?

- Ordinary Gain: ?

- 1250 Gain: $0 (there was none)

Box 20Z lists "Section 199A Publicly Traded Partnership (PTP) Income" as -103. When TT asks "We need some information about your 199A income", do I put the -103 under "(MLP) has business income (loss) / Ordinary business income (loss)"? What's confusing me is the following description listed for the column for "Gain Subject to Recapture as Ordinary Income (listed above as 255)":

"The instructions to Form 8949 are unclear in the determination of capital gains where total gain on the sale of units is partially ordinary gain. Reporting this amount as a negative adjustment in Column G of Form 8949 should generally result in the correct capital gain or loss. The amount reported as ordinary gain is qualified PTP income for Section 199A and has not been included in the amount reported on Schedule K-1, Line 20Z."

"Form 4797 Form 8949" are listed under this column.

Question 3. Do I add the 255 to the "Ordinary business income (loss)", or does it go somewhere else, or none of the above?

Thanks, in advance!

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nexchap

@naviator2003

Question 1: Adjust cost basis to 3,525-314+255 = 3,466

Question 2: Ordinary Income of 255, Partnership Basis of -255, for both columns. On the next screen, you'll see that Cap Gain/Loss -- for the K-1 entries -- is 0. You're handling that on the 1099-B. But this will put the 255 on the 4797 where it belongs.

Question 3: 199A entries for QBI. -103 goes on business income/loss line. I put the 255 on the "Other Income" line. And there's another line on that interview screen that asks something like "How much of the income above is Ord Income reported on 4797" and you'd put 255 here as well.

**Say "Thanks" by clicking the thumb icon in a post**Note also, I'm not a Tax Preparer/CPA. Just a volunteer, seasoned, TurboTax user. Use any advice accordingly!

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naviator2003

@nexchap Thanks so much for the reply! In response to:

Answer 1: Shouldn't the equation to determine correct cost basis be 3,525+255 = 3,780? 3,525 (Cost Basis) was derived from 3,839 (Purchase Price/starting Cost Basis) - 314 (Adjustments to Basis/distributions plus business loss). Your answer appears to subtract 314 twice. Not trying to challenge you, just want to make sure I understand the logic.

Answer 2: Does Sale Price need to be $0 on this part of the interview?

Thanks!

M

Mike9241

i disagree with what has been suggested to report the sale of all MLP shares. your cost and sales price are not the same.

MLP reporting k-1 and 8949

you should have gotten as part of the k-1 package a supplemental schedule from which you can compute your property tax basis and an ordinary income recapture on the sale

Enter the k-1 info
Check the PTP box
If total disposition and then proceed as follows:
Check final K-1 (s/b marked on actual k-1)
Check sold or otherwise disposed of your entire interest.
Use QuickZoom link (desktop forms mode ) to get to the sale/disposition info section.

On the k-1 disposition section answer the questions such as how you disposed of it and the dates involved.

For sales price use the ordinary income (sometimes you’ll see a column with the “751” or the words “Gain subject to recapture as ordinary income”. This info comes from the supplemental sales schedule that should have been provided. the same amount is on the k-1 in box 20AB
Cost is zero
Ordinary income is the sales price.
This info flows to form 4797 line 10 and is taxed as ordinary income.

Now for the 8949.
The broker’s form is probably coded as B or E – sales proceeds but not cost basis reported to the IRS. This is because the broker does not track the tax basis. It used what you paid originally which is not correct.

tax basis; this is where different PTPs/MLPs report differently on the supplemental schedule.
Some will provide a column labeled something like "Total adjusted basis for capital gain/loss purposes" that's what you would use as your cost/tax basis. Others aren't that nice. they will have a column labeled "Cost Basis" or "Total adjusted Cost Basis" to which must be added the section 751 amount

Some other things. Look at lines 20Z1. That number should be added to the ordinary income above for reporting the 199A (qualified business income from the PTP). You don’t have to enter this but then you lose

out on a tax deduction = 20% of this amount

there is a way to check out your tax basis before the 751 adjustment. look at section L on the k-1 which is reported on the tax basis. Beginning Capital account + capital contributed during the year (should be your cost of shares purchased during the current year) + current year net income or - current year net loss - distributions reported on line 19 of the k-1