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How to input cost basis in Schedule K-1 (Form 1065)?

Started by Sam, September 11, 2018, 08:52:52 PM

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Sam

Hi Folks,

So I finally had a successful private equity exit in 2017. As a result, I need to file a K-1. In box 9a for Net long-term capital gain, I inputed $122,904. The problem is, now the tax software I use (H&R Block) thinks that I had a net gain of $122,904.

But the reality is, I invested $70,000 in the investment, so the net gain is really only about $52,904. Further, I was not given $122,904, but $91,902.07, as the firm took out federal and state taxes already.

Therefore, the reality is that I should owe $0 taxes. Any idea on what I should do? I'm assuming if I leave box 9a blank so that I owe $0 capital gains tax, that may be a red flag.

Or, do I really owe taxes on a $122,904 long term capital gain because all these years of filing my K-1, I've had a tax shield due to the losses that have accumulated, therefore, there is no cost to input.

Here's one answer that makes sense, but doesn't make sense based on my proceeds: The K-1 has already provided the GAIN. not proceeds. That presumes the K1 preparer ALREADY has the basis of the property.

If I invested $70K, received $91,902 back after taxes were withheld, then I have to pay $31K in taxes on a $122,904 gain, then I'm actually losing money.
Regards,

Sam

jekamom

I am not a tax professional.  You have to do your own K-1?  or are you just anticipating?

That amount SHOULD be total investment return minus adjusted basis, since they have been taking depreciation against basis every year. 

The money they withheld for taxes is still yours.  Even though they didn't give it to you as proceeds, they "prepaid" some of your projected tax liability due to the sale.  Most ways you earn money you have to allow for taxes.  Some have it withheld, some pay quarterly, some pay when filing, but all pay. 

Sam

Quote from: jekamom on September 12, 2018, 05:27:44 AM
I am not a tax professional.  You have to do your own K-1?  or are you just anticipating?

That amount SHOULD be total investment return minus adjusted basis, since they have been taking depreciation against basis every year. 

The money they withheld for taxes is still yours.  Even though they didn't give it to you as proceeds, they "prepaid" some of your projected tax liability due to the sale.  Most ways you earn money you have to allow for taxes.  Some have it withheld, some pay quarterly, some pay when filing, but all pay.

Makes sense. Depreciation would help if I had income to offset it eg rental income. But I never got any income from this private gin investment so there were no tax savings along the way. Hmm, I'll ask what's up.
Regards,

Sam

jekamom

I would think the annual income would have been offset by depreciation already.

Sam

Quote from: jekamom on September 12, 2018, 07:12:42 PM
I would think the annual income would have been offset by depreciation already.

Yeah, I have a call in with the company tomorrow. I just want to understand why the numbers are so different from what I have received.
Regards,

Sam

Sam

Another question: Can you add up your cumulative losses in the K-1 and offset those losses to the net long term capital gains? If so, what box do you put the losses in? It seems like net is net..........

In box 1 of the K-1, if you have Ordinary business income loss, does that lower your overall taxable income?

thx
Regards,

Sam

jekamom

https://www.irs.gov/pub/irs-pdf/i1120ssk.pdf   K1 instructions

About page 10, section III.   Here are the instructions.  Is it a passive activity?

If you have had a loss for a number of years, each year you should have calculated how much can be carried forward, and if you are able to take any of it for the current year.  One of the reasons I have a CPA!

Right now I am holding about 21k in investment interest expense carryforward that I cant deduct because I don't have an offset.  I will carry it forward (using what I am allowed) for as long as it takes.

I have a general business credit from the first Obama admin--when he allowed a discount on social security taxes for qualified new hires.  I have only been able to use a tiny bit of it--years I am subject to AMT I can't use it.

Does that help?

Sam

Quote from: jekamom on September 16, 2018, 09:04:17 AM
https://www.irs.gov/pub/irs-pdf/i1120ssk.pdf   K1 instructions

About page 10, section III.   Here are the instructions.  Is it a passive activity?

If you have had a loss for a number of years, each year you should have calculated how much can be carried forward, and if you are able to take any of it for the current year.  One of the reasons I have a CPA!

Right now I am holding about 21k in investment interest expense carryforward that I cant deduct because I don't have an offset.  I will carry it forward (using what I am allowed) for as long as it takes.

I have a general business credit from the first Obama admin--when he allowed a discount on social security taxes for qualified new hires.  I have only been able to use a tiny bit of it--years I am subject to AMT I can't use it.

Does that help?

Helpful! Thanks
Regards,

Sam