First time getting a K1-1041

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"\"Re...@home.com

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May 8, 2021, 11:22:31 PMMay 8
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Never have dealt with a K1 before. Just now received one due to final
sale of property in my mother's estate.

After holding onto the vacant lot for 14 years, the executor final sold
it. Apparently the sale generated a $12,000 loss. The K1 shows the
$12,000 in box 11 with code D (Long Term Loss) and $24 in Box 11 code B
(Excess Deduction)

What reading up I've done seems to say I can take up to $3,000 loss
against other Cap Gains, and carryover the remainder.

Also looked at my favorite online Free File website FAQs, and it looks
like they can handle this OK next year.

Am I understanding this correctly ? I'm not clear on what or where the
$24 comes in.

TIA

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JoeTaxpayer

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May 10, 2021, 10:49:45 AMMay 10
to
On 5/8/21 11:18 PM, "\"Retired"@home.com wrote:
> Never have dealt with a K1 before. Just now received one due to final
> sale of property in my mother's estate.
>
> After holding onto the vacant lot for 14 years, the executor final sold
> it. Apparently the sale generated a $12,000 loss. The K1 shows the
> $12,000 in box 11 with code D (Long Term Loss) and $24 in Box 11 code B
> (Excess Deduction)
>
> What reading up I've done seems to say I can take up to $3,000 loss
> against other Cap Gains, and carryover the remainder.
>
> Also looked at my favorite online Free File website FAQs, and it looks
> like they can handle this OK next year.
>
> Am I understanding this correctly ?  I'm not clear on what or where the
> $24 comes in.

I believe the K1 results in the same effect as a long term capital loss
you'd incur.

Unlimited offset of your year's capital gains, then $3000 against
ordinary income.

Given the software you use can handle this, just enter a mock return. I
do this for planning all the time. It will confirm my answer, and also
might help you with tax planning for this year, e.g. you might wish to
take some gains, or just prefer to offset income at your marginal rate.

JoeTaxpayer

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May 12, 2021, 7:12:25 AMMay 12
to
On 5/10/21 10:47 AM, JoeTaxpayer wrote:
> On 5/8/21 11:18 PM, "\"Retired"@home.com wrote:
>> Never have dealt with a K1 before. Just now received one due to final
>> sale of property in my mother's estate.
>>
>> After holding onto the vacant lot for 14 years, the executor final
>> sold it. Apparently the sale generated a $12,000 loss. The K1 shows
>> the $12,000 in box 11 with code D (Long Term Loss) and $24 in Box 11
>> code B (Excess Deduction)
>>
>> What reading up I've done seems to say I can take up to $3,000 loss
>> against other Cap Gains, and carryover the remainder.
>>
>> Also looked at my favorite online Free File website FAQs, and it looks
>> like they can handle this OK next year.
>>
>> Am I understanding this correctly ?  I'm not clear on what or where
>> the $24 comes in.
>
> I believe the K1 results in the same effect as a long term capital loss
> you'd incur.
>
> Unlimited offset of your year's capital gains, then $3000 against
> ordinary income.
>
> Given the software you use can handle this, just enter a mock return. I
> do this for planning all the time. It will confirm my answer, and also
> might help you with tax planning for this year, e.g. you might wish to
> take some gains, or just prefer to offset income at your marginal rate.
>

Follow up - when I'm even the slightest bit hesitant, I tend to seek a
100% accurate answer to share. I did the test return myself. Disclosure
- I've handled a K1 for over 20 years, myself, but never produced a
loss. The K1 will always reflect distributed dividends, and actual cap
gains.

In this case, I entered the $12,000 loss and confirm it did what I
initially answered, offsets gains, and if not used up (offsetting $12K
of gain) it can then offset $3000 of ordinary income. Anything more will
carry to next year. The $24 is an itemized deduction you need to
manually enter as such. The K1 form itself doesn't quite show the
details I'm sharing. It's the entry form on the tax software itself.

https://i.stack.imgur.com/Ke9Xl.jpg

vs the form itself https://www.irs.gov/pub/irs-pdf/f1041sk1.pdf

This shows what I'm saying about the $24. If you don't itemize, just
enter it there, but ignore it, no harm, no foul.

"\"Re...@home.com

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May 12, 2021, 3:37:57 PMMay 12
to
Thanks for the replies and info. I plugged the -12000 into a 1040
what-if, and I saw that it reduced ordinary income by the $3000, and
reduced the final tax on the QD&CG worksheet. Nice.

I am assuming that I will be able to do the deduction for 4 tax years,
reducing the amount by $3000 each year. And my Free File and the IRS
will track same.

Thanks again.
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