I've received a K-1 from a publicly traded partnership, which lists Cumulative Adjustments to Basis. I sold some of the shares in this PTP in 2011, and for each lot, there is an amount in this category.

As I understand it, my basis in these shares is increased by the amount of income that was passed through to me (i.e. earnings of the PTP on which I previously was taxed, even though I didn't receive these earnings as distributions).

I believe I need to enter these Cumulative Adjustments to Basis amounts on Form 8949, in column (g) for the sale of the corresponding shares. Is this correct? If so, what is the letter code I need to enter in column (b)? I checked the list on page D-9 of the Schedule D instructions, but none of the categories apply to my situation.

  • This really is a question that requires a careful look at the various lines of the current and past K-1 forms, Schedules E, passive losses or gains in the past etc. and considerable knowledge of tax law with respect to publicly traded partnerships. While I don't want to vote to close the question, the likelihood of a correct answer on this site is, in my opinion, negligibly small. – Dilip Sarwate Apr 4 '12 at 20:28

You really do need to look at your individual investment in this partnership for tax purposes.

First, you may have what we call an outside basis as well as an inside basis in the investment. For example, if a partnership was forming and you purchased 10 shares at the opening price probably your inside basis and outside basis are the same. What the company shows as your basis on their books is the same as what you show.

Determine if you are merely an investor or if you have significant ownership in the company. This will affect your basis.

However, if you buy on the market at a later date, you might have bought the those 10 shares for a different basis than the company's books show. This is your outside basis. You might also have an inherited basis. A tax professional CPA could help you determine this.

Then you need to see what items of loss might have been limited for tax purposes. You maybe then release some of those losses when you sell the investment as they can move from passive to non-passive.

Be careful because with certain PTP the passive losses can only be offset by gains by the same investment.

Now are you convinced to go to a CPA ?

  • Nice answer. Can you double check the 4th paragraph and be sure I didn't change the meaning of your answer. I added the word "buy" to the first sentence of that 4th paragraph. – MrChrister Dec 13 '12 at 22:04

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