I have a K-1(1065) for an individual client with a footnote indicating that $58K of the amount in box 9a is from assets held three years or less that is associated with an applicable partnership interest. For ProSeries Professional input, can I just subtract $58K from the box 9a (long term) amount and add $58K to the box 8 (short term) amount? Is any disclosure of the change needed on the individual tax return? Thank you.
Under the new law, a taxpayer who holds an applicable partnership interest will recognize net long-term capital gain with respect to such interest only if the taxpayer has held the interest for at least three years. If the three-year holding period requirement is not met, the taxpayer’s net long-term capital gain will be treated as a short-term capital gain, notwithstanding Code section 83 or any election made under Code section 83(b).
You did not mention if your taxpayer has held the partnership interest for more than 3 years. If they have, then I don't think you need to reclass the $58K from long term to short term; however, if they have held their interest less than 3 years, then you would reclass to short term.
Hope this helps.
This is the wording of the K-1 footnote:
"Section 1061 provides that all or a portion of the long-term capital gain reported on line 9a of your Schedule K-1 may need to be recharacterized as short-term capital gain to the extent that the gain is from assets held three year or less and is with respect to an applicable partnership interest. The portion of the gain reported on line 9a that is from assets held three years or less and is associated with an applicable partnership interest is: $58,433".
From this wording, I believe the partnership has made the determination that $58,433 must be treated as a short-term gain. My question was how to report this on Intuit. Please see my original message - do I just change the box 8 and 9a amounts? Is there any disclosure needed of this change?
Yes, I would change the ST box amount and the LT box amount. I work with complex hedge fund K-1s all the time and this is not an unusual occurence. I also concur with your assessment that the determination of the affect of Section 1061 has already been done at the fund level. There is some uncertainty in the application of the law as to whether the holding period must be met at the fund level or partner level or both. Good luck.