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USO ETF Partnership K-1

Forum|Forum|6 years ago
June 3, 2019
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I purchased USO ETF and got K-1. Even I did not get any income, interests or dividends, on K-1 those boxes have some positive amounts. Now I had sold everything for this USO ETF and transaction appears on 1099. My understanding is I have to pay tax for those "income" (even I never get them). My questions are why K-1 boxes show those positive amount (it indicates my "income" or something else) ? Should I pay tax on those void income? How do I handle this on my tax return?

Thank you very much for your advice!

TurboTax Premier Windows

Best answer by nexchap

Your taxes will balance out. Here's how:

- As a partner, you have to pay any taxes the partnership owes. So if the partnership receives $10 in INT, you owe taxes on it even if they didn't send you the $10. You pay this in Turbotax by entering the K-1 into the program, and it takes care of moving everything to the correct spots.

- However, when you sell your share of the partnership, your profit on the sale is different for a partnership. With regular stock, your profit would be [sales price] - [purchase price]. But with a partnership, your profit is [sales price] - [purchase price] - [all the stuff the partnership made you pay taxes on]. So if you paid taxes on $10 in INT, you're 1099-B profit would be $10 less.

To do this, you'll have to adjust the cost of your purchase on the 1099. Your K-1 from USO should have included a Sales Schedule showing instructions on how much to adjust it by.

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nexchapAnswer

Your taxes will balance out. Here's how:

- As a partner, you have to pay any taxes the partnership owes. So if the partnership receives $10 in INT, you owe taxes on it even if they didn't send you the $10. You pay this in Turbotax by entering the K-1 into the program, and it takes care of moving everything to the correct spots.

- However, when you sell your share of the partnership, your profit on the sale is different for a partnership. With regular stock, your profit would be [sales price] - [purchase price]. But with a partnership, your profit is [sales price] - [purchase price] - [all the stuff the partnership made you pay taxes on]. So if you paid taxes on $10 in INT, you're 1099-B profit would be $10 less.

To do this, you'll have to adjust the cost of your purchase on the 1099. Your K-1 from USO should have included a Sales Schedule showing instructions on how much to adjust it by.

**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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nexchap

Cap Loss is ($30) in your example, not ($170).  That's because you have other losses being put on Sched E by USO.

If you open up Forms mode, and go to the Form called "K-1 Partner" for USO, you'll see all your entries for the partnership.  At the very bottom of that form, there's a Section C: "Income and Loss Reported on Sched E".  Since this was a final disposition, Column h (Loss K-1) under the non-passive category, should have a number in it.  Let's say its $70.

That $70 is a loss that's going to make its way through Sched E and onto your 1040, line 17.  It will be on line 17 as ($70), reducing your taxable income.  That's the rest of your loss that you're trying to find above.

In total, your gain loss is the cash that went in and out of your pocket:  $200 (from the sale) + $0 (we'll assume no distributions) - $100 (what you paid).  On your tax forms, that same number is going to show up as a combination of 1099-B, Form 4797 (if you had Ordinary Gain), Sched E (for any losses the partnership passed through), and any other spot the partnership may have reported income or deductions.  It can be complicated to reconcile, but it does work out.

**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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blueaggue

Hello, I read this post and I think it's very helpful. Thank you. I still have a bug which is based on very similar question.

Background: my husband bought and sold UNO in 2023, and he received 1099b and schedule K-1. There are two 1099b, one is non-covered securities, with cost basis reported in form 8949. The sales price is 43,849, and cost basis is 43915. With some wash sales, the gain is $1,808. The second1099b is aggregated loss on contract for 1256 contracts, and the total P/L is -429. The K-1 shows -2,372 in 11c. In the sales schedule, the initial basis is 43,283, the cumulative adjustment to basis is -2,423, and the cost basis is 40,860.

I think I should report both K-1, 1099b and 1256. In form 6781 line 1 I reported -2,372 from K-1 and -429 from 1099b. Is this correct?

In the 1099b, should I adjust cost to 40,860?

Checking schedule K-1 (form 1065) in TT, I have keyed in everything but in Section C: "Income and Loss Reported on Sched E" Column h (Loss K-1) under the non-passive category, there is no number in it. I am not sure what is wrong. It means the losses were not deducted, right?

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PowerTaxer

Hi @nexchap

I was adjusting the cost basis of 1099-B based on the cumulative adjustment in K-1. In my case, the cumulative adjustment is negative so I corrected my 1099-B as below.

K-1 (from USO)

	Amount ($)
Purchase price	2000
Cumulative Adjustment	-500
Cost basis	1500

Original 1099-B (from Robinhood)

	8949 (Box A)	8949 (Box C)
Cost basis	1950	52
Sale proceeds	1650	42
Income (loss)	-300	-10

Amended 1099-B (Edited in TurboTax)

	8949 (Box A)	8949 (Box C)
Cost basis	1950	52
Sale proceeds	1650	542 (=42+500)
Income (loss)	-300	490 (=-10+500)

I updated the number in the sale proceeds of Box C. Is this correct? (Q1) I did this because the cost basis of box A has been reported to IRS. (Q2) Also, I updated sales proceeds instead of cost basis because K-1 indicates negative cumulative adjustment.

Thanks a lot in advance!!

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nexchap

@PowerTaxer Doing it that way reports the correct Cap Gain in total, but I'm not sure that changing the Sales Proceeds number is the best way to do it. I say this strictly because I'm not expert enough to know whether the tax code uses your total proceeds in any other ways than Sched D.

Personally, I'd be more comfortable correcting the basis Robinhood supplied to the IRS (changing the 1950 to 1450). That's completely allowed, and if the IRS ever asks for an explanation you can just say "Robinhood doesn't understand the stuff they broker...." and then maybe add the bit about K-1 basis adjustments.

**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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PowerTaxer

@nexchap I appreciate your prompt comment! I didn't know if it is ok to change the cost basis reported as box A!

I have one follow-up question. In the process of writing a 1099-B item in TT, I found that there is a pop-up like the below capture. Given I have adjusted the cost basis of this item, should I check "The cost basis on my statement is incorrect"? or just leave it not checked.

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Sue45

Help please, please ! I am not sure am I understand it correctly or not.
For my sale of the share, on my K-1, purchase price /initial basis amount: $200, cumulative adjustments to basis: $180, cost basic: $380.

on my 1099B: 1d-proceeds&6-reported Gross: $450, cost or other basis: $250, Gain or loss: $200.

so the real cost basis is purchased price $200+ cumulative adjustment $180 = $380? And I should replace the cost basis $250 at the 1099B with $380?
And my real gain is: sale price $450 — purchase price $200 — cumulative adjustment $180 = $70. And I should adjust the 1099B also?

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nexchap

@Sue45 Based on the numbers you included, you've got it right. Cost of 380 and gain of 70. As a double check, looking at it more practically, you paid $200 originally and sold for $450. So you had a profit of $250. Over the time you owned the partnership, you should have paid tax on that $250. So the $70 showing up on this year's 1099-B is only part of the picture, and suggests that the partnership reported $180 in income over the years that you already paid tax on.

**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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Sue45

Now I understand the cumulative adjustments to basis better. Even I didn’t sell the shares last year, but there was gain value, and I had to pay tax for that. So, that $180 actually is gain adjustment because I paid tax last year already. So now I suppose just owe tax for the part that I never had paid tax before.
Now, I just need to adjust my 1099B, right? I finished input my K-1 in TT, didn’t ask me about sale price or purchase price.

by the way, thank you so much for the reply! I read all your reply and learned so a lot! You definitely save my day, THANK YOU!