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Brad
Brad, Retired IRS Agent
Category: Tax
Satisfied Customers: 177
Experience:  Retired; 32 years service and expertise in Individual, Partnership, Trust, Corporate Tax Law;Mensa
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Where is a K-1 cash distribution reported on IRS 1040?

Customer Question

Where is a K1 cash distribution reported on IRS 1040?

Submitted: 8 years ago.
Category: Tax
Expert:  Ed Johnson replied 8 years ago.

Which line of the K-1 are you talking about? What is the source of the distribution?

Customer: replied 8 years ago.

Reported in both of the following lines on K1

Part II
ItemL - Withdrawals and distributions

Expert:  Ed Johnson replied 8 years ago.

That is good. You received a check from the business. I just wanted to make sure the distribution represented profits (gains).

This income is reported on schedule E Part II,

You will have to have the K-1 to complete the schedule E.

http://www.irs.gov/pub/irs-pdf/f1040se.pdf

When you finish with the schedule E, it will have a balance that is transferred to the form 1040, line 17.

Customer: replied 8 years ago.

Which specific line on Sched_E would this “distribution” be entered in?

Please note, on Sched_E, I am already reporting an amount on Part II , Line 28A (Colm (g)(Passive Income. This amount is summarized on Part V, Line 41, which in return is entered to 1040 line 17.
This amount comes from K1, Part_III, Item 1-Ordinary Business Income.

Are you sure both of these amounts (the Passive Income and the Distribution) are reportable as taxable income?

Expert:  Brad replied 8 years ago.

1. Schedule L

Schedule L contains the partnership's balance sheets at the beginning and end of the tax year. All information shown on the balance sheets for the partnership should agree with its books of record. It has nothing that needs to be reported on Form 1040 and any of the schedules (like D or E) of Form 1040. These amounts are simply balance sheet informative amounts. See: http://www.unclefed.com/IRS-Forms/2001/HTML/p54114.html

2. Line 19 of Part III.

Line 19 shows the amount of any partnership distributions you received; This is for your information and is used to reduce the basis of your investment in the partnership. You don't report this amount on Form 1040 or any of the Form 1040 schedules UNLESS the distribution exceeds your own basis in the partnership. At that point, it is gain that is reported on Schedule D. See further explanation in item 3 below.

Since you, as a partner, keep track of your basis, it is easy for you to determine if that event has happened to you, if your partnership distribution has exceeded your partnership basis. As a partner you have to keep track of your own basis although the partnership also tries to do that.

Below, I am paraphrasing or quoting directly from the websites and am including those websites for you to view.

2. Distributions from Partnership or S Corporation

"In general, distributions from the partnership are nontaxable. The distribution decreases basis, which is used in computing the Basis Limitation. If a distribution is in excess of your basis in the partnership, gain must be recognized." http://www.taxalmanac.org/index.php/K-1_Issues_for_Individual_Taxpayers%2C_General. If there is gain as a result of this distribution, it will be reported on Schedule D as long-term or short-term depending on your holding period in that partnership.

Customer all that follows below is direct quote from the websites that you might wish to visit. I included it to insure that you would at least be able to glance at it now.The current issue has hopefully been clarified. The amount on L. is simply balance sheet information.

The amount on line 19 of part III is also an informative item which you do not have to worry about as it doesn't go anywhere on Form 1040 or its schedules UNLESS as we mentioned above, that distribution exceeds your basid in the partnership. For example, if line 19 shows $50,000 as a cash distribution to you and your basis as a partner is only $20,000, then you would have a gain to report probably on Schedule D unless it is a distribution of receivables as mentioned below (ordinary income).

.........................................................................

http://www.irs.gov/pub/irs-pdf/p541.pdf

http://www.irs.gov/pub/irs-pdf/f1065sk1.pdf

Line 19 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 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 result in ordinary income (see Regulations section 1.751-1(a) and Sale or Exchange of Partnership Interest on page 1). For details, see Pub. 541.

The partnership will separately identify both of the following.

  • The FMV of the marketable securities when distributed (minus your share of the gain on the securities distributed to you). The partnership's adjusted basis of those securities immediately before the distribution. Decrease the adjusted basis of your interest in the partnership (but not below zero) by the amount of cash distributed to you and the partnership's adjusted basis of the distributed securities. Advances or drawings of money or property against your distributive share are treated as current.

Distributions made on the last day of the partnership's tax year.

Your basis in the distributed marketable securities (other than in liquidation of your interest) is the smaller of:

  • The partnership's adjusted basis in the securities immediately before the distribution increased by any gain recognized on the distribution of the securities or The adjusted basis of your partnership interest reduced by any cash distributed in the same transaction and increased by any gain recognized on the distribution of the securities. If you received the securities in liquidation of your partnership interest, your basis in the marketable securities is equal to the adjusted basis of your partnership interest reduced by any cash distributed in the same transaction and increased by any gain recognized on the distribution of the securities.

If, within 5 years of a distribution to you of marketable securities, you contributed appreciated property (other than those securities) to the partnership and the FMV of those securities exceeded the adjusted basis of your partnership interest immediately before the distribution (reduced by any cash received in the distribution), you may have to recognize gain on the appreciated property. For property contributed after June 8, 1997, the 5-year period is generally extended to 7 years. See section 737 for details.

Line 19 also shows the partnership's adjusted basis of property other than money immediately before the property was distributed to you. In addition, the partnership should report the adjusted basis and FMV of each property distributed. Decrease the adjusted basis of your interest in the partnership by the amount of your basis in the distributed property. Your basis in the distributed property (other than in liquidation of your interest) is the smaller of:

  • The partnership's adjusted basis immediately before the distribution or The adjusted basis of your partnership interest reduced by any cash distributed in the same transaction. If you received the property in liquidation of your interest, your basis in the distributed property is equal to the adjusted basis of your partnership interest reduced by any cash distributed in the same transaction.

If you contributed appreciated property to the partnership within 5 years of a distribution of other property to you, and the FMV of the other property exceeded the adjusted basis of your partnership interest immediately before the distribution (reduced by any cash received in the distribution), you may have to recognize gain on the appreciated property. For property contributed after June 8, 1997, the 5-year period is generally extended to 7 years. See section 737 for details.

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 result in ordinary income (see Regulations section 1.751-1(a) and Sale or Exchange of Partnership Interest on page 1).

http://www.taxalmanac.org/index.php/2005_1065_K-1_instructions#Box_19__Distributions

That should do it, and I do hope you visit those websites for reassurance.

Brad, Retired IRS Agent
Category: Tax
Satisfied Customers: 177
Experience: Retired; 32 years service and expertise in Individual, Partnership, Trust, Corporate Tax Law;Mensa
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