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Posted by Ira Smilovitz on April 29, 2008, 9:50 pm
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> Nice discussion of the PTP K-1 problem. Thanks for the suggestions.
>
> Yes, on one or more of my PTP K-1's, the Box L "capital account" is in
> negative territory. But this is a caculation made by the PTP for its
> purposes, not a running tax basis number I can use in my own 1040.
>
> Still, when I subtract all the distributions over the years from my
> original cost (the simple, easy, and apparently incorrect procedure),
> the result is now pretty close to zero and should hit zero by 2009.
> The rule is that when your tax basis hits zero, new distributions must
> be reported as income, either cap gains or dividends, not sure which
> (and that's not too hard to find out, I think).
>
> The problem remains: how do I use the figures in the annual K-1 to
> calculate what portion of distributions is NOT return of capital and
> therefore doesn't reduce my cost basis? It's got to be in there
> somewhere.
>
> If I had a "tax advisor" I would leave it up to him/her, but I do my
> own 1040 using TurboTax, which works OK until the cost basis becomes
> zero. TurboTax has me enter the K-1 figures box by box and then does
> the calculations. But TurboTax doesn't seem to keep an annual tally
> of PTP cost basis.
>
> Art
>
>
> On Sat, 19 Apr 2008 16:26:27 EDT, hidden@hidden.com (Art) wrote:
>
>>Hello--
>>
>>I'm a shareholder (or "limited partner") in several publicly traded
>>partnerships whose distributions are mostly returns of capital that
>>reduce my cost basis as they are paid out. I'm trying to calculate my
>>tax basis in each PTP, because when it reaches zero the distributions
>>become taxable--and also because I might sell them. The trick is
>>knowing when it's zero.
>>
>>Each PTP's annual K-1 sent to shareholders shows a Partner's Capital
>>Account Analysis in Box L. But the IRS instructions for K-1/1065 warn
>>that Box L "cannot be used to figure your basis." Anyhow, some of
>>those Box L bottom lines are already in negative numbers, which the
>>instructions tell you not to use.
>>
>>On p. 2 of the IRS instructions, there's a "Worksheet for Adjusting
>>the Basis of a Partner's Interest in the Partnership" but it requires
>>some expert understanding of the K-1 entries and how they interrelate,
>>from year to year.
>>
>>So is it OK to just deduct from my original cost the cumulative
>>distributions since I purchased the shares? Probably not. Some parts
>>of the distributions were NOT return of capital but passive income,
>>interest, and other categories that complicate the arithmetic in ways
>>I don't grasp. Also, passive losses and carryovers affect the
>>calculation too.
>>
>>Is there a "K-1 for Dummies" book or other source that explains PTP
>>cost basis in layman's terms? Any guidance will be appreciated.
>>
>>Thanks for reading this far--
>>Art
There seems to have been a great deal of misinformation in this thread so
far. The calculation of tax basis in a PTP is straightforward. Start with
your initial purchase price. Each year add all of the income items from the
K-1, subtract all of the expense items, add any additional cash you
contributed to the PTP (reinvestments, additional purchases, etc.) and
subtract all of the cash distributions. The result is your new adjusted tax
basis. Continue each year until you sell. Should your adjusted tax basis
reach $0, any additional cash distribution is taxable income.
Ira Smilovitz
--
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