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How to Back out Section 1202 gain that is included in line 9a of Partnership K-1

SP5
Level 1

I have a K-1 that shows 100 of long-term capital gains on line 9a, and the supplemental info says 15 of those 100 are eligible for Sec 1202 exclusion. I believe the correct presentation is that line 12 of Schedule D shows 100 (the full amount of capital gains reported on line 9a of the K-1), and there is an entry on Form 8949 Box F/line 10 of Schedule D that shows zeroes in columns (d) and (e), "Q" in column (f), and -15 in columns (g) and (h).  I cannot find a way to accomplish that result because ProConnect does not allow the entry with zeroes in columns (d) and (e) or -15 in column (h).  The best I can do is back out the 15 and report only the net 85 in the K-1 screen (so that it populates 85 in line 12 of Schedule D), and then create an entry under "Dispositions" that shows proceeds of 15 in column (d), "Q" in column (f), -15 in column (g), and zero in column (h).  It is a "nothing" entry in that it nets to zero, but perhaps it gives a clue to the IRS as to why line 12 shows a net 85, rather than the 100 that appeared in the K-1.  Has anyone found a better way to address this issue within the constraints of the program?

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PhoebeRoberts
Level 9
Level 9

You do you! I personally have no issues with the presentation of the initial workaround. My only affected return is too complicated for the IRS matching system to work well, even for something "straightforward" like capital gains passing through on a K-1.

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PhoebeRoberts
Level 9
Level 9

That workaround is exactly what I do. Don't forget to add a manual other increase to basis for the $15.

Also, be sure that your client is actually eligible for the 1202 exclusion. The partnership reports tentatively eligible amounts, and partners who bought in after the creation of the partnership may not meet the 1040-level requirements.

SP5
Level 1

Thanks. This is perfect. What do you use for the description for the "nothing" entry on 8949? For now, I have "Gains from 9A of K-1 excl by Sec 1202". And thanks for the reminder on the basis adjustment!

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PhoebeRoberts
Level 9
Level 9

Looks like I used "1202 Gain from K-1 (Partnership Name Here)."

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SP5
Level 1

I figured out a way to get the -15 into column (h) of Form 8949 / Line 10 of Schedule 😧 In the "Dispositions" input, you go to "Less Common Scenarios" and, under "Overrides", there is a "Total gain (loss) [Override]". If you put the -15 there, it will flow to column (h). That way, you can put the full line 9a amount (100) in the K-1 input and achieve the -15 offset through Form 8949!

The only remaining problem is that, when you do it this way, you still cannot get zeroes in columns (d) and (e) while preserving the "Q" and -15 in columns (f) and (g). You have to either:

1. Have all of columns (d)-(g) blank and just a -15 in column (h); OR

2. Put a 15 in column (d) and zero in column (e) (creating a +15 gain), so that then you can have the "Q" and -15 in columns (f) and (g). 

I chose option #1 with a description that says "K-1 Line 9A Gains excl by §1202 (Code Q)". That way, the Code Q is in there somewhere, and, hopefully, the entry makes sense.  I didn't like option #2 because it has actual numbers in the columns that don't add up.  Neither is perfect.  Intuit should let you override columns (f) and (g) as well, so that you can create an accurate entry.

@PhoebeRoberts : I welcome any further thoughts!

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PhoebeRoberts
Level 9
Level 9

You do you! I personally have no issues with the presentation of the initial workaround. My only affected return is too complicated for the IRS matching system to work well, even for something "straightforward" like capital gains passing through on a K-1.

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