K-1s from PTPs

[oceanlovin'ea]

I am in a big debate with my husband about PTPs and reporting the income and losses from PTPs. Since he handles our investments and does a lot of research and reading on all kinds of investments, he has read that unless the "cumulative" income from your PTPs is over $1000, it doesn't have to be reported.

I told him that when you get a K-1 from a company it has to be reported on your tax return, whatever is on it - income or losses.

What is the deal with the $1000? Does anyone know? I just want to be able to explain it to him. We don't have any PTPs and our investments are in our IRAs. So it isn't something that personally affects us. Just want this question answered.

Thanks

Linda, EA

[TaxGuyBill]

I know nothing about PTPs but it seems like a they are subject to "unrelated business income tax” (UBIT) when in your IRA. After the first $1000 of "unrelated business income", it is subject to tax, making the IRA pay tax.

http://www.naptp.org/PTP101/MLPs_Retirement_Accounts.htm

http://www.naptp.org/PTP101/BasicFacts.html

In other words, ANY amount needs to be reported on your personal return, but if it's within an IRA, amounts over $1000 are subject to tax.

[TXEA]

The only time the 1,000 comes into play is when you hold the PTP in an IRA account. The 1,000 represents UBTI that is reported by PTP's and MLP's that stands for Unrelated Business Taxable Income. If the amount is $1,000 or more, then the IRA might have to pay tax.

When you have a K-1 from a PTP that is held in the IRA, the K-1 should have the EIN of the Custodian of the IRA as opposed to your SSN. You do not report UBTI on your personal tax return. You send the K-1 to the IRA custodian.

If you do not hold PTP's in your IRA, they are reported on your personal income tax return regardless of the amount of income or loss subject to the special rules applicable to PTP's that losses are only allowed to the extent of income from the same PTP. Any losses from a PTP are suspended until there is income from the same PTP in another year.

[oceanlovin'ea]

tHANKS

Thanks so much for clearing that up for us. I'll share this with my husband. Guess we were both right to a certain extent.

Linda, EA

[FEDUKE404]

Additional

It looks as if the "$1k question" has been appropriately answered.

Just remember that you will need to work through all of the numbers shown on the K-1 from the PTP. It is quite possible (probable?) that you will show a PTP loss, via Schedule E page 2, that cannot be taken nor used to offset any other income. You will need to generate a worksheet of some type to track the annual losses until such time as positive income from the PTP occurs, frequently not until the PTP itself "matures." Of course, if you actually sell the asset, then you can use the accumulated/unused losses to modify your gain/loss resulting from the sale of the PTP interest.

Fortunately, most good tax software now will track everything "in the background" for you. Just be certain you do check the "Is this a PTP?" box as you enter the data from each K-1.

FE

[Jiggers]

When the PTP in an IRA has that $1,000 UBIT, try sending it to the IRA Custodian. See what response you get.

They will tell your client to return it to you. I tell my client that the custodian is responsible for this and that he should tell him that he is responsible for the filing of the necessary return and will subject the IRA to penalties if he doesn't.

[TXEA]

I have sent many to the custodians. Never a problem.

[JohnH]

It is also worthwhile to note that not all Limited Partnerships are PTP's or MLP's.
This is important because the rules for deducting losses are different for LP's which are not PTP's or MLP's.
Did I get that right?

[FEDUKE404]

Forest for the trees issue

It is also worthwhile to note that not all Limited Partnerships are PTP's or MLP's.

Of course, Section D of Part I of the Schedule K-1 Form 1065 should* easily put that matter to rest.

*OTOH, I've known folks who see no importance for entering anything shown in Box 13 of a W2. . . . until they get a very rude awakening in the Land of IRAs. . . .

FE

[oceanlovin'ea]

Right now he doesn't have any PTP's in our IRA accounts. But he has Scottrade accounts and I think they consider him as the custodian. So he (wait, that would be me) would have to do that form. I don't want to. But they pay good interest rates.

Thanks for all the comments. They did help.

Linda, EA

[JohnH]

How much is interest and how much is return of principal?
IMO, most PTP's and MLP's go out of their way to confuse the definition of "return".
And personally, I don't recall ever having seen anyone make money on one.
(not exactly your original question, but I had to throw that in there).

[oceanlovin'ea]

Ptp

Yes, there is a difference. They always get a check each year from the PTP but the K-1 always shows a loss.

I had a problem reporting with my software, but I will address that in another thread.

Linda, EA