Reporting Partnership K-1s on Form 1040: Tax Basis Capital, Built-In - PowerPoint PPT Presentation

LINES 2 & 3: NET RENTAL INCOME/(LOSS) Passive Income: Report box 2 or 3 activity on Schedule E, Line 28, Col (h) passive income 42

LINES 2 & 3: NET RENTAL INCOME/(LOSS) Materially participating real estate professionals: Report box 2 activity on Schedule E, Line 28, Col (i) nonpassive loss allowed or (k) nonpassive income 43

LINES 2 & 3: NET RENTAL INCOME/(LOSS) Passive Loss: Report box 2 or 3 allowed loss on Schedule E, Line 28, Col (g) passive income 44

LINE 4A: GUARANTEED PAYMENTS FOR SERVICES 46

LINE 4A: GUARANTEED PAYMENTS FOR SERVICES From the Partner Instructions to Schedule K-1: Guaranteed payments are payments made by a partnership to a partner that are determined without regard to the partnership's income. Generally, amounts on this line are not passive income, and you should report them on Schedule E (Form 1040 or 1040-SR), line 28, column (k) (for example, guaranteed payments for personal services). 47

LINE 4B: GUARANTEED PAYMENTS FOR CAPITAL 48

LINE 4B: GUARANTEED PAYMENTS FOR CAPITAL From the Partner Instructions to Schedule K-1: These are guaranteed payments other than for services, such as for the use of capital or attributable to section 736(a)(2) payments for unrealized receivables or goodwill. Amounts on this line should be reported on Schedule E (Form 1040 or 1040-SR), line 28, column (k) (for example, guaranteed payments for capital). 49

LINE 5: INTEREST INCOME 50

LINE 5: INTEREST INCOME • Ultimately reported on line 2b of Form 1040 • Potentially reported on Schedule B (discussed shortly) • Form 4952: Investment Interest Expense Deduction – if investment income, it will also be reported on line 20a • Form 8990: Business Interest Expense Limitation (discussed more later) 51

LINE 6: DIVIDENDS 52

LINE 6: DIVIDENDS 6a: Ordinary Dividends • Reported on line 3b of Form 1040, potentially Sch B (discussed shortly) 6b: Qualified Dividends • Reported on line 3a of Form 1040 • Are part of line 6a ordinary dividends (don’t double count) • Taxed at preferential long term capital gains rate • Excluded from investment income on Form 4952, but can elect to include 6c: Dividend Equivalents • Not reported on Form 1040 • Provided for foreign persons who are required to treat dividend equivalents as U.S. source dividends • Not included in line 6a ordinary dividends 53

SCHEDULE B: REPORTING INTEREST & DIVS Part 1: Interest Part 2: Ordinary Dividends Part 3: Foreign Accounts When Schedule B is required: • Over $1,500 taxable interest or ordinary dividends • Seller- financed interest mortgage where buyer’s personal residence • Accrued bond interest • OID reported is less than on Form 1099-OID • Reducing reported interest by amortizable bond premium • Exclusion of interest from series EE or I U.S. Savings bonds • Received interest or ordinary dividends as a nominee • Have interest or signature authority over foreign financial accounts 54

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LINE 7: ROYALTIES 56

LINE 7: ROYALTIES 57

LINES 8 & 9: CAPITAL GAINS/(LOSSES) 58

LINES 8 & 9: CAPITAL GAINS/(LOSSES) Ultimately reported on line 6 of Form 1040 Line 8: Short Term Capital Gains/(Losses) • Reported on Form 1040 Sch D, Line 5 Line 9a: Net Long-Term Capital Gains/(Losses) • Reported on Form 1040 Sch D, Line 12 Line 9b: Collectibles (28%) Gains/(Losses) • Report on 1040 28% Rate Gain Worksheet, Line 4 59

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Found in Schedule D Instructions 61

9C: UNRECAPTURED SECTION 1250 GAIN 62

9C: UNRECAPTURED SECTION 1250 GAIN Gain from the sale of partnership assets goes to line 5 of the Sch. D Unrecaptured Sec. 1250 gain worksheet. 63

9C: UNRECAPTURED SECTION 1250 GAIN Gain from the sale by the partnership of an interest in another partnership attributable to unrecognized unrecaptured Sec. 1250 gain goes on worksheet line 10. 64

9C: UNRECAPTURED SECTION 1250 GAIN Note that the only place line 9c goes is the Sch. D worksheet. It doesn’t itself go to the front of any form. It doesn’t go to Page 1 of Sch. D or to the partner Form 4797. 65

LINE 10: NET SECTION 1231 GAIN (LOSS) 66

LINE 10: NET SECTION 1231 GAIN (LOSS) If nonpassive or a gain: 67

LINE 10: NET SECTION 1231 GAIN (LOSS) If a loss from a passive activity, it goes through the 8582 passive loss worksheet mixer. 68

DON’T DOUBLE UP LINE 9C AND LINE 10! The amount on line 9c is part of line 10. It’s not an additional gain on top of line 10. Make sure you only ends up in income once. Remember – the only place 9c goes is the Sch. D. Unrecaptured Sec. 1250 gain worksheet. This computes the rate on the amount on line 10. It doesn’t add to the amount. 69

LINES 11: OTHER INCOME/(LOSSES) 70

LINE 11, CODE A: OTHER PORTFOLIO INCOME/(LOSS) Portfolio income other than interest, dividends, royalties, and capital gains and losses. REMIC (Real estate mortgage investment conduit) activity is reported on Schedule E, line 38 71

LINE 11, CODE B: INVOLUNTARY CONVERSIONS Reported on Form 4684, Casualties and Thefts 72

LINE 11, CODE C: 1256 CONTRACTS & STRADDLES Reported on Form 6781, Gains and Losses from Section 1256, line 5 73

LINE 11, CODE E: CANCELLATION OF DEBT This one can get complicated. The taxability of debt cancellation income is determined at the partner level. This differs from the S corporation determination. If there is no exclusion, it goes to Form 1040, Sch. 1, Line 8. The debt may be excludible in whole or part at the partner level if the partner was insolvent prior to the debt forgiveness. If so, then you need to file Form 982 to compute tax attribute reductions. 74

LINE 11, CODE F: SEC. 743(B) POSITIVE ADJUSTMENTS This can end up in many places, depending on what assets the adjustment relates to and what triggered it. If an asset’s basis with respect to the partner was reduced when the partnership interest was acquired – if there was a built-in loss on the asset at the time – there will be a positive adjustment when the asset is sold. This can affect Form 4797, Sch. D, and of course the passive loss computations. An adjustment here will probably require looking at a supporting K-1 schedule to determine where it will go. Negative Sec. 743 adjustments will appear on Line 13, code V. 75

LINE 11, CODE G: SEC. 965 INCLUSIONS This will relate to deferred income from 2017 from the partnerships investment in Controlled Foreign Corporations. It will come through to the 1040 via Form 965, most likely through Sch. 1., line 8. 76

LINE 11, CODE G, H: CFC ITEMS Code G will relate to deferred income from 2017 from the partnerships investment in Controlled Foreign Corporations. It will come through to the 1040 via Form 965, most likely through Sch. 1., line 8. Code H will report certain subpart F inclusions other than GILTI and Sec. 965 items. 77

DEDUCTIONS AND LOSSES 78

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LINE 12 SEC. 179 81

LINE 12: SEC. 179 For a non-passive partner, go directly to Form 4562, line 6. Enter "from Schedule K-1 (Form 1065)" across columns (a) and (b). 82

LINE 12: SEC. 179 It will go from there to page 2, Sch. E. 83

LINE 12: SEC. 179 For passive taxpayers, it goes through the Form 8582 passive loss worksheet mixer. 84

LINE 13: OTHER DEDUCTIONS 85

LINE 13, CODES A-G: CHARITABLE CONTRIBUTIONS Reported on Schedule A Be aware of AGI limitations depending on the type of contribution; with contributions carried forward 5 years Noncash contributions may require additional reporting Use Form 8283 to report noncash contributions > $500 • If no 8283 is provided with K-1, combine amount reported as noncash from partnership with other noncash to see if $500 threshold passed • If Form 8283 required and K- 1 doesn’t provide all necessary information, complete only column (h) of line 1 with your share of the contribution and enter “From Schedule K -1 Form 1065) across columns (d)-(g) Form 8283 will be provided by the partnership to attach to Form 1040 if the partnership’s donation is $5,000 or greater for one or similar items • Partner will deduct amount on K-1 line 13c, not the amount on Form 8283 86

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LINE 13, CODE H: INVESTMENT INTEREST EXPENSE To Form 4952, line 1, and from there to Sch. A or Sch. E. 88

LINE 13, CODE I: ROYALTY EXPENSE 89

LINE 13, CODE J: SECTION 59(E)(2) EXPENDITURES This can cover a variety of expenditures for which an amortization election is available to the partner. These include: • Circulation expenditures • Research and experimental expenditures • Intangible drilling costs • Mining development expenditures • Mining exploration costs If currently expensed, rather than amortized, there is an AMT adjustment or preference. 90

LINE 13K: EXCESS BUSINESS INTEREST EXPENSE This is the partner’s share of interest expense disallowed at the partnership level under Sec. 163(j) on the partnership’s Form 8990. This goes to Form 8990, Schedule A, Column C. 91

LINE 13, CODE M: AMOUNTS PAID FOR MEDICAL INSURANCE Either reported on line 1, Schedule A, Itemized Deductions Or, Line 16 on Schedule 1, Additional Income and Adjustments to Income 92

LINE 13, CODE N: EDUCATIONAL ASSISTANCE BENEFITS These are includible in partner income and should be part of guaranteed payments, but may create deductions and credits for the partner Deduct on a separate line of Schedule E, line 28, on Form 1040 up to the $5,250 limitation • Section 127 excludes from income up to $5,250 in employer education assistance benefits for undergrad or grad courses each year if used to pay for tuition, fees, books, supplies and equipment If reported benefits exceed $5,250, the excess may be used on Form 8863 for an education credit 93

LINE 13, CODE N: EDUCATIONAL ASSISTANCE BENEFITS Wait: Partners can’t be employees of the partnership?! §127(b)(3) Not more than 5% of amounts paid during the year can be for partners (or their spouse/dependent) who own >5% §127(c)(3) An individual who owns the entire interest in an unincorporated trade or business shall be treated as his own employer. A partnership shall be treated as the employer of each partner who is an employee within the meaning of … §401(c)(1) Self- employed individuals treated as employee… § 401(c)(1)(B) The term “self - employed individual” means an individual who has “earned income” (net earnings from self -employment) 94

LINE 13, CODE 0: DEPENDENT CARE BENEFITS Report on Form 2441, Child & Dependent Care Expenses, Part III Used to compute deductible and taxable benefits, and credit Include deductible benefits in the total entered Schedule E, line 28 (allowed loss) Include taxable benefits on Form 1040, line 1, wages with “DCB” noted 95

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LINE 13, CODE P This relates to preproductive period expenses of plants. If the preproductive period exceeds two years, these expenses may be subject to 263A For most individuals, they will be deductible, subject to normal loss limit rules 97

OTHER ITEMS 98

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LINE 15: CREDITS In general, do not need to complete the source credit form if the partner receiving the K-1 isn’t a partnership or S corporation , and the only source for a credit listed on Form 3800, Part III is passed through from a partnership, S corporation, estate, trust, or coop Simply report the credit amount from the K-1 onto Form 3800, Part III for the appropriate credit and enter the EIN of the partnership in column (b) of Part III Exceptions: passive activity, investment, or biodiesel and renewable fuels 100