Sale of Master Limited Partnership (MLP) Interest

Master Limited Partnerships (MLPs) are becoming more and more popular investment options.  When you sell your interest in an MLP, the tax reporting can be complicated based upon your unique individual situation.  Over the course of your investment in the MLP, you will receive a Schedule K-1 each year reporting your portion of the income from the MLP.  In addition to your share of the yearly income, you will most likely receive distributions from the MLP throughout the year.  These distributions are generally considered "tax-free" at the time because they are a return of your basis or return of capital in the investment.  Therefore overtime, as you receive "tax-free" distributions, you will adjust your basis in the investment accordingly.  When you finally decide to sell your interest in the MLP, you will have a taxable gain on the sale.  This taxable gain will be the difference between the sales price and your adjusted basis in the investment.  Reporting this taxable gain at the time of sale can be confusing.

Of the taxable gain you must report, you may have both capital gain/loss and ordinary gain/loss. Generally, you should receive some supplemental information with your Schedule K-1 in the year of the sale indicating the portion of ordinary gain or loss and the portion of capital gain or loss.  To enter this transaction into TaxAct®, you will make two separate entries: one for the portion of ordinary gain or loss and one for the portion of capital gain or loss.

To enter the ordinary gain or loss amount on Form 4797:

1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
2. Click Investment Income to expand the topic
3. Click Gain or loss on the sale of investments to expand the topic
4. Click Ordinary gain or loss (Form 4797)
   
5. Click +Add Sale of Business Property to create a new copy of the form or click Review to review a copy already created
6. When entering information, enter a description of the sale and select Cost-sharing property (Sec. 1255) for the Type of property. If you are reporting an ordinary loss, enter the loss amount in the cost basis field. If you are reporting an ordinary gain, enter the gain amount in the sales proceeds field. leave all other fields blank to ensure the gain or loss is reported as ordinary gain or loss.

To enter the capital gain or loss amount on Form 1099-B to transfer to Form 8949 and Schedule D accordingly:

1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
2. Click Investment Income to expand the topic
3. Click Gain or loss on the sale of investments to expand the topic
4. Click Capital gain or loss (Form 1099-B)
5. Click +Add Form 1099-B to create a new copy of the form or click Review to review a copy already created
6. If you received a Form 1099-B for this transaction, enter the information accordingly to the Form 1099-B received and any supplemental information from your Schedule K-1.  Otherwise, enter the transaction information as if you received a Form 1099-B and be sure to select reporting category C or F to indicate this transaction was not reported on Form 1099-B.