How to properly account for suspended losses over the years on MLP full disposition

[Boyan]

Hi everyone,

Could someone kindly remind me on the proper way to go back throughout the years and add up all the suspended losses which are to be released upon the full disposition of an MLP?

I have all the K1s going back since the day of purchase; all I need is guidance on which box to look at on the K1 for each year and add-up and then where to enter that number when filing? This is a full disposition of MLP units; all long term, clean transaction. I've changed computers many times and I just don't trust TT to have kept the carry over losses over the years properly and it's possible that I have screwed up one year or another to correctly enter the K1s so need a sanity check.

Thank you

Boyan

[Anonymous_]

@nexchap typically answers question relating to MLPs. Stay tuned.

[nexchap]

@Boyan There's no single entry on the K-1 that will tell you what will be suspended in any given year.  If its a fairly "normal" MLP, you can get a quick approximation if you add up Ord Bus Income (box 1) and Sect 1231 gain (currently box 10) over the years.  But you can't count on that being the exact figure, because other income / losses over the years may have occurred and would need to be accounted for.

If you want to be exact, as a workaround you could enter the past year's K-1 into your current TT, and see what it puts into suspension.  Some of the codes may have changed over the years, but the line item descriptions should still line up.  Or just reinstall the past year's versions of TT, and verify that you did the K-1 correctly.

Also be aware that, if your basis has gone below 0, some of your suspended losses can be forfeit.  That's yet another wrinkle you'll have to work through in nailing down the correct suspended loss.

As to "where to enter", when you go through the TT interview, it will ask for your carryover.  It will then use that, plus your current year K-1, to determine what to transfer to Sched E.

[Mike9241]

not only box 1 but also boxes 2 and 3 on the k-1, 2 is common if the MLP is engaged in rental real estate. box 3 is rather uncommon. boxes 11 and 13 could also contain items subject to suspensed loss rules

[Boyan]

Thank you @nexchap and @Mike9241 for the quick replies.

I was looking for a quick and dirty way to do it and of course that's not a good idea for the purposes of any type of accounting. What I ended up doing is review each prior year "Partner’s Share of Income, Credits, Schedule K1 (Form 1065) Deductions, etc. Keep for your records" Section A to make sure column (a) and (b) are properly entered and the math works out. To be clear, this isn't the K1 that the PTP sends, this is a worksheet that TT generates for each year filing when one chooses "save PDF for your records".

At the end - it was correct yay! If this was an extremely effort intensive way and if there's another, easier yet equally accurate way to do this do share your ideas.

Thank you again!

[nexchap]

@Boyan That works.  Just be aware that you still need to double-check that your basis hasn't gone below $0 (basis is 'capital account' from Section L plus 'Nonrecourse' liabilities from Section K).  TT won't check that, and doesn't provide the needed forms until you uncheck "All of my investment in this activity is at risk"

[Mike9241]

Turbotax is supposed to keep track of those suspended losses but will do nothing if losses are in excess of basis.   the easiest thing to do is to review the carryovers Turbotax computes each year and then check that the same numbers are transferred to next year's return.  not much work if you have only a few MLPs. but be wary. there are some MLPs out there that all they do is invest in other MLPs sometimes 50 or more.  that means you need to enter 50 k-1s.  had one taxpayer make that mistake and was very unhappy when they got the tax prep bill. (professional prep using Lacerte)