SVXY k-1 and Turbotax

[jrhyno]

So, I've traded some SVXY over the last year or so. Imagine my surprise when my brokerage statement indicated that I had made almost 10K (good!), but my K-1 from ProShares indicated on line 11(c) that my "income" was just over $20,000.

I spoke with a quite helpful guy from Proshares, who went into some depth regarding how their numbers worked. I understood, I thought, what he was saying, but I still don't see how it applies to how to file using turbo tax.

A concrete example:
I traded 40 shares over a two day period (1-20-16 buy, 1-22-16 sell), and netted $144.54
On the K-1 the CUMULATIVE ADJUSTMENT TO TAX BASIS is 0. The guy at ProShares said that anything under a 30 day holding period isn't adjusted.

Unfortunately, on longer holding periods, these values are quite skewed.

Anyway, I really can't figure out how to reconcile the numbers from the K-1 and the brokerage form, and certainly I don't want to pay tax on the same thing twice.

Thanks in advance.

 

[mic]

If I'm not mistaken (based on a sample base of 1, of my own K-1), values in the Cumulative Adjustment to Tax Basis column would appear only on you held the ETF on the first trading day of the month. At least these are the days when an adjustment is entered. Any other days, it is zero.
Check the following: go through your sales schedule and add up all your adjustments. I bet it will be very close, if not exactly the same, to the value that is entered in box 11.
So on the tax return, I did what was suggested in this thread:
- reported all amounts found on schedule K-1 (first page) in TurboTax's K-1 section. This will increase/decrease your investment income. The gain/loss shows up under the Contract and Straddles section in TT, if your K-1 gain/low was reported in box 11c.
- Under the Stocks, Mutual funds etc. section in TurboTax, I entered additional transactions manually, to adjust the tax basis as per the sales schedule. The YouTube video explains it well.

These two entries will offset each other in TurboTax, and you'll pay only as much tax as your would expect after your true gains.

 

[sprstpd]

So, I've traded some SVXY over the last year or so. Imagine my surprise when my brokerage statement indicated that I had made almost 10K (good!), but my K-1 from ProShares indicated on line 11(c) that my "income" was just over $20,000.

I spoke with a quite helpful guy from Proshares, who went into some depth regarding how their numbers worked. I understood, I thought, what he was saying, but I still don't see how it applies to how to file using turbo tax.

A concrete example:
I traded 40 shares over a two day period (1-20-16 buy, 1-22-16 sell), and netted $144.54
On the K-1 the CUMULATIVE ADJUSTMENT TO TAX BASIS is 0. The guy at ProShares said that anything under a 30 day holding period isn't adjusted.

Unfortunately, on longer holding periods, these values are quite skewed.

Anyway, I really can't figure out how to reconcile the numbers from the K-1 and the brokerage form, and certainly I don't want to pay tax on the same thing twice.

Thanks in advance.

The guy at ProShares should not be relied on. I have an SVXY K-1 in front of me from a previous year. I held some shares 1 day and in the (6) Cumulative Adjustment to Tax Basis, there is 1,926. You should have at least one entry (or multiple entries combined) in that Cumulative Adjustment column that should be close to your 11(c) income. If not, it is possible that the Cumulative Adjustment happened in 2015 but you hadn't exited the position at that point in time. Do you have any non-zero entries in the Cumulative Adjustment column?

 

[jrhyno]

Yes, most of my cumulative adjustment column entries are none zero, and in most cases quite a bit more than my realized gains on my 1099-B form. I'm starting to understand better that the K-1 for SVXY is marked to market(?) if that's the correct term, and doesn't have anything to do with profit and loss on the traded item. What I didn't understand is that the SVXY shares that I traded results in concrete gains and losses, but the K-1 form reflects paper profit over the time that the security is held?

Anyway, I think that I'm getting the idea of where to enter the cost basis (back on the 1099-B form). By actually paying attention to the forms, I noticed that on the 1099-B from Scottrade, it says that "Basis is NOT provided to the IRS". I think that on the 8949 form, column (e) is where I need to add the cost basis. Should I do this line for line, which I certainly can? On the K-1 I have the column (6) Cumulative adjustment to tax basis for each trade. So, does that number get added to the cost basis?

I'll try to give a specific example in a bit.

Thanks,

Jeff

 

[jrhyno]

Ok, a specific:
sold shares proceeds aquired cost gain
8-9-16 50 3,689.64 12-11-15 2,374.5 1315.14


K-1 info:
(1) (2) (3) 4-5 (6)
units Aquired date Disposition date blank Cumul adjust. to tax basis
50 12-11-15 8-9-16 1380

Ok, what do I do with the adjust to tax basis?

Thanks

 

[jrhyno]

Ok, those columns didn't line up at all the way that I wrote them.

Bottom line:

All dates the same.

1099B gain = $1315.14

K-1 Cumulative adjustment to tax basis: $1380

I'm guessing that the $1380 gets put into the 8949 in column 1e. In some cases the cumulative adjustment to tax basis is quite a bit higher. Would this cancel out the double counting of the income?

 

[sprstpd]

Ok, those columns didn't line up at all the way that I wrote them.

Bottom line:

All dates the same.

1099B gain = $1315.14

K-1 Cumulative adjustment to tax basis: $1380

I'm guessing that the $1380 gets put into the 8949 in column 1e. In some cases the cumulative adjustment to tax basis is quite a bit higher. Would this cancel out the double counting of the income?

If your 1099-B says that the basis was not reported to the IRS, I would just modify your cost basis by adding it into Form 8949 column 1e (if the cost basis was reported, I would suggest something different). In your example, for that particular transaction, I would add $1380 into your cost basis for that transaction on Form 8949. This will change your gain for that transaction by -$1380.

What you should find is that if you add all the numbers on the "Cumulative Adjustment to Tax Basis" column on your K-1, that they should total up to approximately what your box 11c says on your K-1. I think you said earlier it was just over $20,000. In other words, once you adjust the cost basis of your 8949 transactions, you will have reduced your gain by approximately $20,000. You will be reporting the 11c ~$20,000 gain under Sec. 1256 contracts. It should balance out.

Note that if there are other boxes on your K-1 that are not zero (for example, on my SVXY I had a positive number on 13k), then the K-1 income could be reported in multiple places (not just Sec. 1256 contracts).

Another way to double-check is that the "Cumulative Adjustment to Tax Basis" column on your K-1 should definitely total up so that it matches the number in Box L, Current year increase (decrease).

 

[sprstpd]

If your 1099-B says that the basis was not reported to the IRS, I would just modify your cost basis by adding it into Form 8949 column 1e (if the cost basis was reported, I would suggest something different). In your example, for that particular transaction, I would add $1380 into your cost basis for that transaction on Form 8949. This will change your gain for that transaction by -$1380.

I would also keep notes of why you adjusted the cost basis like you did, otherwise you might forget in the future why the numbers don't match up with your brokerage records for cost basis. I know I've saved myself confusion by writing down this stuff as I go and keeping personal records.

 

[sprstpd]

If your 1099-B says that the basis was not reported to the IRS, I would just modify your cost basis by adding it into Form 8949 column 1e (if the cost basis was reported, I would suggest something different). In your example, for that particular transaction, I would add $1380 into your cost basis for that transaction on Form 8949. This will change your gain for that transaction by -$1380.

Looking at Form 8949, it appears you might have to use column (f) and column (g) in order to change the cost basis, not column (e).

 

[sprstpd]

Looking at Form 8949, it appears you might have to use column (f) and column (g) in order to change the cost basis, not column (e).

Doing some more research, if you look at the instructions for Form 8949, under "How To Complete Form 8949, Columns (f) and (g)," it appears that you put a "B" in column (f), a 0 in column (g), and you adjust your basis by modifying column (e). This is assuming that the basis was not reported to the IRS (like you stated before).

From the instructions:

IF You received a Form 1099-B (or substitute statement) and the basis shown in box 1e is incorrect ....................... THEN enter this code in column (f) . . . B AND. . . If this transaction is reported on a Part I with box B checked at the top or if this transaction is reported on a Part II with box E checked at the top, enter the correct basis in column (e), and enter -0- in column (g).

Did your 1099-B show a basis for these SVXY transactions? If so, and if the basis was not reported to the IRS, then it appears that is how you would report the basis adjustment. Please read those instructions to verify for yourself.

Final note: I am not a professional tax adviser.