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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 3852
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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I received a K-1. I am not sure how to include this information

Resolved Question:

I received a K-1. I am not sure how to include this information on the 1040. There is income. However, there were also distributions on Line 19. Where does this go?

Also, there are amounts in Section K: Nonrecourse Partner's share of liabilities, Recourse share of Partner's liabilities and Section L capital account analysis.

Please help.

Thanks.
Submitted: 11 months ago.
Category: Finance
Expert:  Rakhi Vasavada replied 11 months ago.

Rakhi Vasavada :

Dear Friend,

Rakhi Vasavada :

Hello and welcome. Thank you for providing an opportunity to assist you.

Rakhi Vasavada :

Kindly remain online for a while as I prepare your reply.

Customer:

OK. Thanks.

Rakhi Vasavada :

I will not take more than a minute or two. I appreciate your patience.

Rakhi Vasavada :

As I understand, as per line 19, what you are referring to is in recaptured gain --Unrecaptured Section 1250 Gain Worksheet

Rakhi Vasavada :

Correct me if I am wrong.

Customer:

Line 19 on the K-1 is Distributions.

Rakhi Vasavada :

Yes. I got it.

Rakhi Vasavada :

Generally, this gain is treated as gain from the sale of a capital asset and should be reported on Form 8949 and the Schedule D for your return.

Rakhi Vasavada :

Refer. http://www.irs.gov/instructions/i1065sk1/ch02.html#d0e1797

Rakhi Vasavada :

Hello, are you there? Do you see my reply?

Customer:

Yes. I was looking at the form. I am not sure that I understand why this is done this way.

Customer:

Would this be the case even if it was a cash distribution?

Rakhi Vasavada :

Distributions are reported on your returns, depending upon they are cash, marketable securities it any other form. It stands explained on the link give, however, let me reproduce the relevant content.

Rakhi Vasavada :

If you will look a schedule K-1 (1065) you will find 14 different types of income.


However, if it was actually a distribution of capital you still have to report this to the IRS. It would be reported in box L "Partners Capital Account Analysis" on form 1065 K-1 and box 19 of the same form.

Rakhi Vasavada :

Code A shows the distributions the partnership made to you of cash and certain marketable securities. The marketable securities are included at their fair market value (FMV) on the date of distribution (minus your share of the partnership's gain on the securities distributed to you). If the amount shown as code A exceeds the adjusted basis of your partnership interest immediately before the distribution, the excess is treated as gain from the sale or exchange of your partnership interest. Generally, this gain is treated as gain from the sale of a capital asset and should be reported on Form 8949 and the Schedule D for your return. However, if you receive cash or property in exchange for any part of a partnership interest, the amount of the distribution attributable to your share of the partnership's unrealized receivable or inventory items results in ordinary income (see Regulations section 1.751-1(a) and Sale or Exchange of Partnership Interest, earlier). For details, see Pub. 541.

Customer:

OK. It is Code A. I will have to determine a date for sale.

Rakhi Vasavada :

Yes.. that is correct.

Customer:

What about amounts in Section K?

Rakhi Vasavada :

OK.... child on for a while....

Rakhi Vasavada :

Sorry.... typo....

Rakhi Vasavada :

Hold on for a while...

Rakhi Vasavada :

Can you please say which box number it is? There are more than one items here

Rakhi Vasavada :

Are you there?

Customer:

Also, what if there was an offset to the distribution? There were cash contributions made into the business also. The contributions were larger than the distribution. The contribution is shown in Section L.

Rakhi Vasavada :

The information contained therein is reported to you.

Customer:

Sorry. Section K does not have line numbers shown.

Rakhi Vasavada :

Its fine..... it is recourse and non recourse liability reported to you by the partnership. It will not be reported on your tax return. You would just attach the K-1 along with your tax return.

Rakhi Vasavada :

So is the case with item L

Customer:

Item L shows the amount that I contributed to the partnership. Can I put this on the return somewhere as an offset to the distribution received?

Rakhi Vasavada :

No you will not.

Rakhi Vasavada :

You will use K1 data Only to report income on 1040. You will find detailed instructions here.

Rakhi Vasavada :

www.irs.gov/pub/irs-pdf/i1041sk1.pdf

Rakhi Vasavada :

The cash distributions would increase your share and basis. But you cannot use it on 1040 anywhere.

Customer:

Is this reported when the business is sold? That doesn't seem fair to show distributions but not contributions.

Customer:

What about Section 179 and other deductions?

Rakhi Vasavada :

You will use Form 4562 to claim your deduction for depreciation and amortization, make the election under section 179 to expense certain property, and provide information on the business/investment use of automobiles and other listed property.

Customer:

ok.

Rakhi Vasavada :

It is pleasure assisting you. Is there anything more that I can assist you with?

Customer:

No. Thanks.

Rakhi Vasavada :

You are most welcome. In future, if you need to reach out to me directly, just prefix "For Rakhi Vasavada......." and you will reach me.

Customer:

ok

Rakhi Vasavada :

You may please kindly spare to positively rate this conversation as that would compensate me for the help provided.

Rakhi Vasavada :

Sorry... "spare a moment...."

Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 3852
Experience: Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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