The K-1 includes a sales schedule whose numbers are used to populate the schedule D taking into account ordinary income and basis adjustment amounts from the sales schedule. If you use Turbotax, enter the K-1 sales schedule information in the partnership section and it will automatically populate the schedule D.
What you certainly should not do is enter the sale information from your brokerage statement directly into schedule D as that will be wrong as it will not take into account basis adjustments and ordinary gain amounts.
Thanks for info. I sold a portion of my KMP this year. Will the k-1 properly reflect this? I had heard that if you only sell a portion of your holdings, it presents tax reporting difficulties. Is this true?
It does present reporting difficulties, but I never sold a portion so am hazy on the details. There have been lots of discussion in the past on the InvestorVillage MLP board on this topic. In brief, Turbotax will not handle a partial sale correctly without tricky manual overrides. You'll have to search for the details on the IV board posts.
In addition, selling a portion will not unlock your deferred passive losses, so the tax hit will be relatively higher than if you sold all. However that is an IRS rule rather than a reporting difficulty.