Should a partner's 1065 K-1 line L show excess distributions over basis as a negative amount? Should the excess be reported on line 9a as long term capital gain?

[bruce3]

Taxpayer took distributions in excess of his basis from his partnership. When I enter the distributions in section L of the K-1 (capital account) it shows an ending capital account balance as a negative amount. Is this correct, or should it show as $0? Should I enter the excess distributions on line 9a to carry to the 1040 schedule D? Should any additional information be reported on any other K-1 line?

[TaxMonkey · Accepted solution]

Capital accounts are not basis, and can be negative.  Distributions are shown, in box 19 and definately NOT in 9a

[sjrcpa]

On the partner's tax return the distributions in excess of basis are taxable as a capital gain.

[dnightin]

Can you tell me how in ProSeries, I would get the software to show a capital gain when a Partner K-1 shows a distribution in Block 19, that is in excess of their capital account (Block L Ending capital account goes negative)?

[abctax55]

@dnightin 

You can't...  It's not part of the partnership return.

The excess & the 'gain' is computed AT the shareholder level - on the F 1040.  A partner's basis may/or may not be the same as the capital account shown on the K-1.  Outside basis can/often does exist.

edit... and that gain (if there is one... depends...) is reported via the dispositions screen (F 8949/Sch D).  As I use Lacerte, I can't help with the PS specifics. 

[dnightin]

I realize my question wasn't specific enough.  On Form 1040, in Pro Series, if there there really is a distribution in excess of the capital account (and there is no outside basis) how do I make the capital gain show on the Form 1040?  

[dkh]

I believe you would need to enter on Schedule D via 1099 B Worksheet - Quick Entry Table