I am seeking guidance on the proper handling of my 2012 K-1. My 2012 LINE K-1 is showing the following amounts on Part 3:
Line 1 $1,877 (ordinary business income)
Line 13J $4,533 (intangible drilling costs)
Line 20T1 $2.245 (Cost Depletion)
I am showing these item on Schedule E Part 2 as follows:
$1,877 is being reported on Line 28 (j) as Non-Passive Income
-$6,778 is being reported on Line 28 (h) as a Non-Passive Loss
And, my Tax Act software is showing on Line 32 of Sch E Part 2 a loss of -$4,901 which is then transferred to Form 1040, line 17 and applied
Here is my tax question: I thought losses on PTP such as Linn Energy are limited each year to the amount of income that partnership reports on Line 1 (or $1,877)?
My tax software is not only offsetting the $1,877 from Line 1 of the 2012 K-1 but also generating a loss of -$4,901 from the Sch E which flows over to my 1040 line 17 and is offsetting other items of 2012 income.
Is this correct?
If so, is it because Cost Depletion and IDC have special tax provisions for these tax losses that other PLPs that only transport or store energy don't?
I saw your question, with more detail, on the Investor Village board. I can't post on IV. I registered once but don't remember my name or anything to sign in. I tried re-registering, but the site kept telling me to call customer service, which I don't want to do. The whole purpose of the internet is to allow us to live our lives without any human interaction, so I'm not talking to customer service.
Anyway, the easy part - if you're in the AMT, you're better off with the 5 year amortization and no AMT adjustment. It shouldn't affect your tax liability in year 1, but you get the benefit of the amortization in future years.
You talk about only claiming a part of your cost depletion and carrying forward the rest. I've never heard of this. I think the right way is to claim the full amount and the unused portion becomes part of your PAL carryover. If you ever got audited (unlikely, I know, especially for an MLP) I think you'd have some problems explaining that you simply decided not to claim the full deduction in the year that LINE reported it, and instead decided to claim it in a subsequent year.
Now the interesting part - you say if you check the material participant question, Tax Act lets you offset other MLPs incomes, and deduct the excess. You aren't a material participant. The material participant rules are pretty specific as to hours worked in the activity, etc. Since you're an outside investor you can't possibly satisfy those requirements. I tried my own software, and checking the material participation box overrode the public partnership rules - my software allowed me to deduct the MLP loss in full. But that's just number crunching - neither you nor I are a material participant in any MLP's activity. File any way you like, but it's a mistake.
And an interesting side bit - my MMP K-1 showed a loss ofr 2012; yours apparently showed a gain.
Huge thanks for all your help, seeing my post of the other mb, and carring to try and help a fellow investor.
What goes around comes around and maybe someday I can return a favor your way. I also want to give kudos to Lisa H. I read this mb and have noticed, like you, she is a "giver" in terms of help. The world needs more "givers" like you and Lisa and a lot fewer "takers."
I understand and agree that amorltizing the IDC makes the most sense (and cents) for my situation because of the AMT.
I also want to do as your suggest with respect to putting in the full cost depletion and having the software compute the right amount to use and carrying over the balance to use in future years.
I don't think my software is the problem but it's the guy that's filling in the blanks. At the moment, as things current stand, the only way, I can make my software show the K-1 Line 1 income of $1,877 on Sch E is to click that I am a material participant and we both know and agree this is wrong.
I'm going to save my tax return using a name like "2012 dummy return" and then reopen the dummy return and delete every entry related to LINE 2012 K-1 and start from scratch making sure I incorporate your suggestions.
One last inquiry from you if I may? On the Sch 2 Page 2 Line 28, should the software show multiple entries across the same line where the $1,877 K-1 income appears? In other words, will the offsets for amortization likely show on this same line the $1,877 of income does as an offsetting loss. And, how about the cost depeltion, shouldthat portion of cost depletion needed to fully offset the $1,877 also be on that same line or will the offset appear on different lines?
I thinking, my call to TaxAct for help last week and them e-mailing how to add the cost depletion and IDC as a new and separate K-1 could be source of my problem? I think the basic K-1 on TaxAct has worksheets for to properly handle both 13J and 20T1 date entries. Wish me luck.
Thanks to you and Liza for taking the time and effort to help an old codger like me.
No. I have never sold any shares of LINE. I'll go back again and double check how I answered all of the questions concerning this K-1.
My hope is the income tax laws will remain the same with respect to "stepped up basis on inherited property" so my heirs will have to option to sell with little or no negative income-tax consequences.
I'm not going to file electronically . So, do you think my planned entries will pass IRS muster if I override my tax software and list them on Sch E line 28 as Passive income and Passive losses?
Again my sincerely thanks for your efforts and any recommendations. If I find in checking my answers that I gave my tax prep software a reason to believe I disposed of any of my LINE holdings, I correct it and report back what if any changes that brought about. However, I'm almost certain I didn't
I think you are correct, there should be a passive loss which is carried forward to offset against future income from the same partnership. This should not propagate to the 1040. I have heard before that Taxact does not handle MLPs correctly and it certainly sounds like it is wrong here.
My understanding is that Turbotax is the only retail software which handles most MLP situations (excluding partial sale) correctly. I would suggest switch to Turbotax.