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How to handle K1 with only line 19 income?

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  • How to handle K1 with only line 19 income?

    TurboTax and FreeTaxUSA seem to have a hard time accepting my K1 only has income on line 19. It says it does not flow onto form 1040, and that I should report it elsewhere.

    The situation is I received a K1 for 2020, even though I had formally left the partnership during 2019. This was for a leftover, small (ie < $1k) distribution that was disbursed in early 2020. This is all from emptying out the Beginning Capital Account in Part II Box L Partner's capital account analysis, via Withdrawals and distributions.

    So do I need to pay taxes on this disbursement (presumably yes), and if so, how/where do I appropriately flow this into my tax return?

    Separately, can I still legitimately place a deduction for my 2019 tax prep fees (~$200 from turbo tax) paid in 2020, as UPE (Unreimbursed Partnership Expense), against this small 2020 K1 income, even though I had $0 Ordinary business income?

    TYIA

  • #2
    Distributions are generally not taxable if you have what's called "basis" in your partnership interest. Any distributions in excess of your basis are taxed as a capital gain (long or short depending on the holding period of your partnership interest).

    If the capital account is on a tax basis and the ending capital is zero you likely have no taxable income to report.

    And if the distributions were in excess of your basis, you would have to manually enter that as a capital gain. It's not something tax software generally does for you automatically which is why TurboTax and FreeTax USA aren't flowing it through anywhere.

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