Taxpayer received a 1099-B for the merger of Kinder Morgan this year. Basis adjustment suggested by the worksheet makes a negative basis.
This means that the total gain on sale is more than the proceeds. Can this be possible? The tax basis on the k-1 shows about a positive $140k, so how can the sales worksheet give me a negative basis of slightly more than that? Any thoughts? Should I just use zero basis instead?
TaxConnections Members... Answer This Question Want To be One of Our Tax Experts? Register Here
Tax Professional Answers
When you say the K-1 shows positive capital, are you looking at Line J in Part 2 on the first page? It is possible that you could have a negative tax capital account, even though you have an overall positive tax basis in your interest . This could happen, for example, if you were "allocated" a share of the partnership's debt. For example, if you had a negative tax capital account of 20,000 and a share of debt equal to 160,000, you would have a positive tax basis of 140,000. However, upon the disposition of the partnership interest, you would have additional proceeds for tax purposes of 160,000, due to relief of your share of the partnership's debt. That could cause you to have up to 20,000 more gain than the proceeds you actually received. Both your tax capital account and your share of debt should be reflected on the first page of the K-1, Part 2, lines J and L, respectively. If your capital account is not negative, it would be a bit hard to explain the outcome you're describing.Leave a Comment 322 weeks ago
Hi Glenn, thank you for the answer. I actually finally just figured it out--I was able to get the k-1s for a few prior years, and found out the taxpayer had been running a negative basis, and Kinder Morgan allocated about $300k of debt to his basis as an adjustment. Thus the large negative adjustment, as you said for relief of the debt on the sale. I am not sure why they chose to do this instead of just showing the share of debt on Line K, but I definitely would not have figured it out without those prior years!Reply 322 weeks ago