Final K1 tax computation Schedule D vs 4797

Forum|Forum|4 years ago
March 20, 2022
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I received a 'Final K1' with following details:

Part 3, Box 2 (Net rental real estate income): 10000

Part 3, Box 10 (Net section 1231 gain): 100000

In TT, I selected the following answers

Describe the Partnership: "This partnership ended in 2021."

Describe Partnership Disposal: "Complete disposition"

Tell Us About Your Sale: "Sold Partnership Interest"

Sale Information:

Sale Price: 110000 (from final distribution)

Partnership Basis: 45000 (50000 initial capital - 5000 prior distributions received)

This seems to be resulting in double counting.

a. On 'Schedule D' Part 2 long term gains: 65000 (110000 - 45000)

b. On 4797 line 10: 65000 (from a above)

On 4797 line 11: 100000 (from k1 Part 3, Box 10)

resulting in 4797 line 15: 165000

Capital gains seem to be double counted in 4797 (once from K1, and once from 8949) resulting in overall gains roughly 2x of the net income I generated from this.

What am I missing?

TurboTax Premier Online

PatriciaV

Employee

The final distribution you received is NOT the sales price, if you did indeed sell your partnership interest. If the partnership dissolved and you didn't receive payment from a third party (or another partner) for your interest, indicate that you disposed of the investment, but not by selling it. If you were paid by a third party, then the amount you received for your interest would be the sales price.

If you received a final distribution that was reported on your final K-1, your ending adjusted basis should be reduced by that distribution. The calculation would be:

Initial Contribution
Less: Total Distributions
Plus or Minus Net income/loss allocated to you since inception
= Final adjusted basis

The IRS provides a Worksheet for Adjusting the Basis of a Partner's Interest in the Partnership to help you make this calculation correctly.

If you received total distributions that exceed your adjusted cost basis, any amount over your basis is taxed at the ordinary income tax rate and is not capital gain.

Please note that the Capital Account Analysis that appears on Schedule K-1 is not necessarily your true investment basis. Be sure you include the net income information from your final K-1 when completing the IRS worksheet.

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t4tax19Author

Thanks, I am wondering now if I should be selecting 'Disposition was not via a sale' in 'Describe Partnership Disposal' question.

I didn't do anything specific to 'sell' the partnership: The partnership managed real estate, and sent me a 'Final' K-1.

PatriciaV

Employee

Since you did not sell your interest to a third party, you should be selecting "Disposition not via a sale" or "Complete disposition." Either one will finalize this investment.

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