K-1 FROM PTP

[TAXMAN]

I have a K-1 from a PTP. Box 1 shows a negative #.(-1300.00)Down in box 20 it shows AH3 Depreciation for noncormforming states. (A positive#) ($3071.00) My tp lives in VA a noncormforming state. Do I add the negative # to the positive # to enter on line one of K-1 imput sheet? or enter as they are and adjust VA return only. I think this is the way to go. As then I will have to track fed and state basis separately. Do you agree?

[Sara EA]

I wouldn't bother.  With PTPs, losses can only be taken against income from the same PTP.  If no losses are deductible, they won't affect federal or state income in states that start with federal AGI.  It will only make a difference when the shares are sold, and the worksheet the PTP provides at that time should show the state amounts.

Does anyone ever pay attention to that long list of state amounts on the K-1s?  There are not enough days in the year to do that.  I figure if the states actually notice they'll tell us.

[Abby Normal]

This would only affect the state. I suppose if the state depreciation adjustment was more than the federal loss, you could combine them as a state adjustment only, but if it combines to a loss, then there'd be no state adjustment.

I suppose, in an ideal world, we'd track the state carryover losses separately and have a state adjustment on disposition of the investment for the carryover losses allowed, the ordinary income portion, and for the gain/loss on disposal. But as Sara EA has already said, in practice, it all works out in the end.

What we're essentially doing, is ignoring the state's decoupling rules, but mathematically it will be correct on disposition, in TOTAL. Fortunately, for most state returns, different types of income are all taxed at the same rate.