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R. Klein, EA
R. Klein, EA, Accountant
Category: Financial Software
Satisfied Customers: 3375
Experience:  A member of the Intuit Ask a Tax Expert team and 10 years as QuickBooks Certified Pro Advisor.
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I have a net long term capital loss from a section 165 loss

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I have a net long term capital loss from a section 165 loss on a partnership. I am using TurboTax and it does not seem to be giving me credit for the LT capital loss in my return. Any idea why? And what I should do differently?

R. Klein, EA :

Hello and thanks for your tax question today. My name is XXXXX XXXXX I will be assisting you.

R. Klein, EA :

A few questions first. How much of a loss did you have from this activity?

R. Klein, EA :

How much are your total capital losses from all sources?

R. Klein, EA :

How much are your capital gains for the year?

R. Klein, EA :

If you can please stay online, it will make it easier and quicker to respond to your questions. Thanks.

Customer:

47,628 loss for this activity

R. Klein, EA :

Hello again.

R. Klein, EA :

DId you have any other gains or losses?

Customer:

capital gain of 41,253

R. Klein, EA :

Where did you report this S165 loss?

Customer:

form 1065 K-1

R. Klein, EA :

What line of the K-1 has this item?

Customer:

9a

R. Klein, EA :

Line 9a is a regular capital loss.

R. Klein, EA :

How did you decide this was S165?

R. Klein, EA :

A S165 loss is a casualty loss, not a capital loss.

Customer:

the partnership sent me a k-1 in the detail, it has a gain of 1,220 from portfolio activities and a loss from pass through entities for a total net long term capital loss of 47642. Those are the specific wordings and amounts they used?

Customer:

9a says its for net long term capital gains

R. Klein, EA :

OK. Noting in that phrase indicates a S165 type loss.

R. Klein, EA :

So this sounds like an ordinary LT capital loss.

Customer:

yes, it says in the footnotes for 9a "your share of IRC sec 165 loss preported on line 9A is (48,862)

R. Klein, EA :

As I stated previously, a S165 loss is NOT the same as a LT Cap Loss. Do you know exactly what caused this loss?

R. Klein, EA :

This is important because they are treated COMPLETELY different on a tax return.

R. Klein, EA :

If you try to put a S165 loss through as a capital loss item, TurboTax will have no way to determine the correct procedure to handle this.

Customer:

unsure of the official type. It essentially dissolved and shut down I believe.

R. Klein, EA :

That would NOT sound like a S165 loss unless there was specifically fraud involved

Customer:

I have a form 8886 that the partnership sent that says in item 7a that it is a capital loss

R. Klein, EA :

Sounds like the first step is to determine from the PARTNERSHIP what happened.

Customer:

no fraud

R. Klein, EA :

There is no Line 7a on a partnership K-1

R. Klein, EA :

Then everything you are telling me points to an ordinary capital loss, not a Section 165 casualty loss.

Customer:

line 7a of form 8886 that they included for those individuals who meet the threshold amounts of reportable loss transactions. I don't believe I qualify, but they sent the form as an example for those that do, I guess.

R. Klein, EA :

Just to see what is coming out, what is on Form 1040, Line 13?

Customer:

a gain of 41,253 which I believe to be my capital gains for my stock and mutual fund investments. I was hoping to put the partnership losses against this.

R. Klein, EA :

Form 8886 is used when the partnership is a tax shelter.

Customer:

I cannot see anywhere in the return that I am getting credit for the loss on the partnership

Customer:

That definitely does not apply

R. Klein, EA :

OK, so the K-1 shows Box 9a as a loss.

R. Klein, EA :

Now a few more questions....

R. Klein, EA :

Is your AGI over $150K?

R. Klein, EA :

How many K-1s do you have total?

Customer:

ah, more detail. This was a "disposal of the partnerships stock investment in an entity for no proceeds"

Customer:

Yes, AGI is over 150, I have 5 or 6 partnerships

R. Klein, EA :

Is this loss a passive investment?

Customer:

yes

R. Klein, EA :

What was the TOTAL GAIN in all passive investments for the year?

R. Klein, EA :

and how much gain was in NON-PASSIVE partnerships?

Customer:

is there an easy way to find that? I don't have any non passive partnerships

R. Klein, EA :

OK, are you looking at a printout of your tax return so far? Or are you on the computer looking at forms mode?

Customer:

found it

R. Klein, EA :

found what?

Customer:

it lists 4 partnerships, but is not including the one in question. total passive loss (4753), total passive gain 12,888

Customer:

but that is for the 4 other partnerships, the one in question is not listed for some reason?

Customer:

\

Customer:

looking at schedule E

R. Klein, EA :

There is only room for 4 on the form. The rest are listed on an additional page

R. Klein, EA :

Are you in the program?

Customer:

oh, I had to scroll down

R. Klein, EA :

OK, let's go to Forms mode if you are not already in it. There is a button top right corner to go to forms mode. See it?

Customer:

it shows for the partnership in question, nothing for f g h I or j columns?

Customer:

yes, I am in forms. I think I am good to go.

R. Klein, EA :

OK, let's start in the left panel and click on the Form 1040. That's where I would like to start please

Customer:

its showing no loss for the partnership.

R. Klein, EA :

In the right panel, please tell me the amounts on lines 13, 14 and 17

Customer:

of form 1040?

R. Klein, EA :

yes form 1040

Customer:

line 13 41,253

Customer:

line 14 11

Customer:

line 17 8,146

R. Klein, EA :

OK good.

R. Klein, EA :

I'd like to know if you had any capital gains or losses NOT from the partnerships...such as from a brokerage account

Customer:

yes absolutely - gains

R. Klein, EA :

OK. So here, in lay-terms, is the basic scenario so you know what I am looking for

Customer:

lay it on me...

R. Klein, EA :

The capital LOSSES will only offset capital GAINS. It will NOT offset any PARTNERSHIP income reported on Lines 1 or 2 of the K-1s

Customer:

got it, but I think most of the gains were capital gains.

R. Klein, EA :

So, what we need to find is if your capital GAINS, in total, were in the range of $90K+/- before we applied the $48K loss

Customer:

is there an easy way to find that?

R. Klein, EA :

This means capital gains from the brokerage as well as boxes 9a/b/c from the partnerships

R. Klein, EA :

Go to Line 13 of the 1040. Click on it to fgind a magnifying glass. Then click the magnifying glass

R. Klein, EA :

THis takes us to Sch D

R. Klein, EA :

Tell me when you are there

Customer:

I am at sched d

R. Klein, EA :

How much is on Lines 1,2 and 3?

R. Klein, EA :

RIGHT hand column

Customer:

ST loss of 15,051

Customer:

for line 1, nothing for 2 or 3

R. Klein, EA :

OK and LIne 5?

Customer:

-8

R. Klein, EA :

So Line 7 is around -15059 ?

Customer:

exactly

Customer:

but that is short term, this is a long term loss

R. Klein, EA :

OK, no Lines 8-9-10

Customer:

nothing for 8, -523 for 9 and nothing for 10

R. Klein, EA :

OK, now the big one....Line 12

R. Klein, EA :

there better be a big number here.....Or we have to go fishing....

Customer:

46,519

R. Klein, EA :

great.

Customer:

that is big for me!

Customer:

you are pretty good at this!

R. Klein, EA :

So if you were to flip through all those K-1s, can you tell me each of the POSITIVE numbers on LINES 9a ONLY.

Customer:

line 13 is 10,306 in case you were wondering

R. Klein, EA :

I am expecting to see a number over $100K

Customer:

yes, give me a sec

Customer:

ah, yes, you are right. BUMMER! I have one with 94,023

Customer:

Its offsetting some of that, huh? I did not make the connection as I did not see any income from it!

R. Klein, EA :

It's OK....you have to know how to dance around the tax return :)

R. Klein, EA :

(Or I have x-ray vision!)

R. Klein, EA :

So, in summary, the losses are being taken into consideration.

Customer:

Well done. so that's it huh? Thanks so much for your help!

R. Klein, EA :

OK. If I have answered your question today, please take a moment and provide a positive rating!

R. Klein, EA :

Thank you very much and have a good day!

Customer:

absolutely. Thank you!

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