SVXY k-1 and Turbotax

Thanks, I think that either way would get the job done, and the instructions appear somewhat confusing, at least to me.

So, to consolidate my posts from before:

50 shares, purchase price = 2374.5, sale price = 3689.64, 1099B gain = $1315.14
K-1 Cumulative adjustment to tax basis: $1380

So, I think that I need to add the K-1 amount of $1380 to the purchase price in this instance (2374.5 + 1315.14 = 3689.64), which then zeros out the "gain" on the K-1.

So this total purchase price of 3689.64 should be placed in column (e) of the 8949.
 
Jeez!

Looks like I did that incorrectly.

Should be: 50 shares, purchase price = 2374.5, sale price = 3689.64, 1099B gain = $1315.14

K-1 Cumulative adjustment to tax basis: $1380

So, I think that I need to add the K-1 amount of $1380 to the purchase price in this instance (2374.5 + 1380 = 3754.5), which then zeros out the "gain" on the K-1. That might now be correct.

Very confusing, especially doing this for the first time....
 
And I know that you are probably getting tired of my posts, but when I try to put in the cumulative adjustment to tax basis for a wash sale, it looks like it gives me a loss, which isn't allowed. Should I just not add the adjustment to the wash sales that I have?

Thanks for the patience, I'm about out of patience.
 
So lastly, after re-reading the instructions for 8949, it looks like I shouldn't itemize all of the sales individually (which is an option in turbo tax). It looks like I should go straight to the form and in column (e) at the bottom add the total cumulative adjusrment to tax basis.

I'm guessing that this could more confusing, but I'm not sure how.

And I'll have to break down the short and long term, as I have both Part I box B and Part II box E checked.
 
Since your cost basis has changed, it could definitely take a transaction that was a gain into a loss and thus enter the realm of wash sale possibility. I.e., you can have a basis change (B) code and a wash sale (W) code in the same transaction (a BW code then). As for tracking wash sales, it is just a complete nightmare unless you have software that does it for you. Without seeing your returns in person, I don't think I can answer your questions effectively. You should consider filing for an extension, paying what you think you owe in taxes, and then filing your real return before the extension deadline. It will give you some time to figure out what you want to do with your return.
 
Thank you for very helpful information. I have tried with the method suggested in this thread, but have run into a problem/question. Below is what I did in TurboTax.

1. I traded SVXY last year and have made some gains from the transactions. Just got K-1 for it, and both cell L "Current Year Increase" and cell 11 "Other Income" show a sizable figure, which are almost the same. I added up all the "accumulative adjustment to tax basis" cells and they add up exactly to the number in cell L.

2. I entered all information on K-1 in TurboTax under the K-1 section. This significantly increased my calculated tax for both federal and state (TurboTax shows 'in progress' numbers of calculated tax owed while you enter information, and after entering K-1 info, those numbers went up significantly).

3. I manually added a transaction under the 'Stock, bond etc.' section in TurboTax in order to adjust the tax basis on 1099B (to not count the same income twice). I entered the number in cell L of K-1 as the price paid, and entered 0 as sale amount. This reduced my stock income by the amount of cell L.

Now the question arises. After doing all these, I was hoping the calculated tax owed will be brought back down to what it was before I started entering K-1 (step 2 above). However, the number was brought down below that original number for federal, but not for state.

Everyone has been saying in this thread that it is just moving numbers around, and the amounts will cancel each other, leaving the tax reliability unchanged after filing K-1 AND adjusting cost basis accordingly. But how come by doing so it lowered my tax liability?

The only explanation I can think of is, by moving the amoung in cell L from 1099B to form 6781 (a result of filing K-1), the tax rate for that amount changed, in fact, lowered. Since section 1256 contracts allow 60% long term and 40% short term tax treatment, the tax rate for the amount of cell L lowered from the ordinary tax rate that amount received when it was reported on 1099B. As a result, the federal tax is lowered, while the state tax owed doesn't really change (only by a few dollars) because state tax doesnt' distinguish between long/short term capital gain.

Are the steps I took in TurboTax correct, and if so, is my understanding of why the federal tax lowered significantly correct? (I did the math, and it confirmed my understanding of the 60/40 rule being applied to the cell L amount).

If my steps and understanding are all correct, does it mean that filing K-1 and adjusting cost basis accordingly does not 'not affect your tax liability', but could potentially lower it due to the 60/40 rule?

Many thanks for any thoughts


sprstpd said:
That would be what I would do, although again I must say I am not a tax expert so you should treat everything I say with skepticism. However, if you held shares from 2013 to 2014, then it is possible the cost basis of trades in 2013 would not be affected. It all depends on when these K-1 events happened that resulted in numbers appearing in your K-1 (if that makes sense). Usually on the K-1 it shows you a "Sales Schedule" and on that schedule there is a column that says "Cumulative Adjustment to Basis". That should show you which trades you did resulted in one of these K-1 events happening (i.e., a number gets generated on your K-1). I.e., only those trades with adjustments to basis need to be adjusted on your Schedule D (Form 8949).



My opinion on this is that if you are trading SVXY shares then no, you do not get 60%/40% tax treatment on your SVXY trades (i.e., on your Schedule D). However, SVXY might generate numbers in Box 11, C (Sec. 1256 contracts & straddles) which do get 60%/40% tax treatment. Your tax software (TurboTax, H&R Block, etc.) will generally take the numbers on the K-1 and move them onto the right forms. In this case, it should move the Box 11, C entry to From 6781, line 1. Since I never trust my tax software to get this stuff right, I always double check what it does with K-1s. In my case, I use H&R Block and it even admits during the interview process that it does not handle PTPs (Publically Traded Partnerships) correctly.



Follow your Sales Schedule and determine which transactions need adjustments to their basis. That should guide you on how to adjust your Schedule D transactions. Always report the numbers on your K-1 and make sure your tax software carries those numbers to appropriate places on your tax form. Then I think you will be good to go.



I don't have much experience with options and how they affect your taxes so I don't really have any idea on that. For the SVXY shares though, your Sales Schedule should show you when you are allowed to adjust your cost basis on individual trades.



Yes, but again the Sales Schedule will show you how to apply those numbers in terms of adjusting your cost basis on individual transactions.
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I followed the steps you described below, but the two entried did not offset each other in TurboTax. Instead, my federal tax owed was lowered. When you said the two offset each other and you'll pay as much tax as you would if you didn't file K-1 in the first place, did you see your tax liability number being the same before and after entering K-1 & adjusting basis, or was it your estimation that the tax liability won't change?

Many thanks

mic said:
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.
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confusedone said:
Thank you for very helpful information. I have tried with the method suggested in this thread, but have run into a problem/question. Below is what I did in TurboTax.

1. I traded SVXY last year and have made some gains from the transactions. Just got K-1 for it, and both cell L "Current Year Increase" and cell 11 "Other Income" show a sizable figure, which are almost the same. I added up all the "accumulative adjustment to tax basis" cells and they add up exactly to the number in cell L.

2. I entered all information on K-1 in TurboTax under the K-1 section. This significantly increased my calculated tax for both federal and state (TurboTax shows 'in progress' numbers of calculated tax owed while you enter information, and after entering K-1 info, those numbers went up significantly).

3. I manually added a transaction under the 'Stock, bond etc.' section in TurboTax in order to adjust the tax basis on 1099B (to not count the same income twice). I entered the number in cell L of K-1 as the price paid, and entered 0 as sale amount. This reduced my stock income by the amount of cell L.

Now the question arises. After doing all these, I was hoping the calculated tax owed will be brought back down to what it was before I started entering K-1 (step 2 above). However, the number was brought down below that original number for federal, but not for state.

Everyone has been saying in this thread that it is just moving numbers around, and the amounts will cancel each other, leaving the tax reliability unchanged after filing K-1 AND adjusting cost basis accordingly. But how come by doing so it lowered my tax liability?

The only explanation I can think of is, by moving the amoung in cell L from 1099B to form 6781 (a result of filing K-1), the tax rate for that amount changed, in fact, lowered. Since section 1256 contracts allow 60% long term and 40% short term tax treatment, the tax rate for the amount of cell L lowered from the ordinary tax rate that amount received when it was reported on 1099B. As a result, the federal tax is lowered, while the state tax owed doesn't really change (only by a few dollars) because state tax doesnt' distinguish between long/short term capital gain.

Are the steps I took in TurboTax correct, and if so, is my understanding of why the federal tax lowered significantly correct? (I did the math, and it confirmed my understanding of the 60/40 rule being applied to the cell L amount).

If my steps and understanding are all correct, does it mean that filing K-1 and adjusting cost basis accordingly does not 'not affect your tax liability', but could potentially lower it due to the 60/40 rule?

Many thanks for any thoughts
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You are correct. Depending on where the numbers get transferred to from the K-1, the tax implications will change. Because SVXY uses futures contracts, the 60/40 rule benefit passes along to you so your tax liability will be lower if you held SVXY short-term. If you held it long-term, it seems like your tax liability would go up because part of your long-term gain is being transferred as a 60/40 gain. It would be more correct to say that your tax liability is approximately the same after moving the numbers around. In the case where you are talking very large numbers on your SVXY K-1, then "approximately" may mean a large absolute difference in the end.
 
Thank you so much for the reply. You are right, I did hold SVXY short term, not long term.

I have one more question. I am thinking, what exactly does 'accumulative adjustment to tax basis' mean on K-1? Does it mean one's 'taxable income' (tax basis?) is increased/decreased by the number in that cell on K-1? It seems that the 'adjusting tax basis on 1099B' thing is just offsetting such 'accumulative adjustment to tax basis', in other words, bringing down the tax basis by the amount it is increased by K-1? Is this correct? If yes, then my question is why do we bring it down manually?

You have mentioned before that the 'income' on K-1 and the transaction gain/loss from trading e.g. SVXY are two different concepts. The former being the income passed along to investors from the partnership, and the latter being simply the difference between trade proceeds and costs.

Now if that is the case, why should we adjust the cost basis of the trading transactions by the amount of the 'income' passed long by the partnership on K-1? I am confused: isn't the 'income' on K-1 independent from the trading transactions? Many have mentioned that they have gained from the tradings, but K-1 shows a loss, or vice versa. Doesn't it mean that no matter you gain or lose from trading the ETF, your 'income' from the partnership is just on top of that, and you may be paying tax on 'income' of the partnership even if you have lost money trading, or vice versa? But why does everyone say 'do no count the same gain/loss twice'? Am I missing something?

Probably silly questions. Many thanks

sprstpd said:
You are correct. Depending on where the numbers get transferred to from the K-1, the tax implications will change. Because SVXY uses futures contracts, the 60/40 rule benefit passes along to you so your tax liability will be lower if you held SVXY short-term. If you held it long-term, it seems like your tax liability would go up because part of your long-term gain is being transferred as a 60/40 gain. It would be more correct to say that your tax liability is approximately the same after moving the numbers around. In the case where you are talking very large numbers on your SVXY K-1, then "approximately" may mean a large absolute difference in the end.
More...
 
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