Complex Tax Questions on PTP K-1s - Handling Sales, Repurchases, and UBTI Implications

These are great questions about PTPs. Let me address them one by one: For your first question about selling some or all of a PTP without repurchasing: Your K-1 will reflect your ownership percentage for the portion of the year you held the investment. So if you sold halfway through the year, you'd receive a K-1 showing roughly half the income/UBTI you would've had for a full year hold. The partnership calculates your share based on how long you owned units during their tax year. For selling and rebuying within the same year: This gets tricky. The partnership tracks your ownership through broker reporting. If you sell and rebuy through the same broker, they might track this properly. However, if you use different brokers or there's a reporting gap, you might receive a K-1 that doesn't perfectly reflect your actual ownership periods. The K-1 should theoretically adjust for the period you weren't an owner, but in practice, this reporting isn't always perfect. Regarding death: For taxable accounts, the basis gets stepped up to fair market value at date of death (or alternate valuation date), which can be beneficial. For IRAs, the tax treatment follows normal inherited IRA rules, but the UBTI can still affect the IRA itself as the IRA may need to file a 990-T if UBTI exceeds $1,000. Your observation about capital accounts affecting line 1 and 20V reporting is generally correct. As your capital account changes, your proportional share of partnership income and UBTI typically adjusts accordingly.

After struggling with similar PTP tax issues last year, I discovered taxr.ai (https://taxr.ai) which has been incredibly helpful with analyzing K-1 documents and tracking partnership basis changes. I uploaded several years of my PTP K-1s, and their system identified inconsistencies in how my sales and repurchases were being reported. They have a specific module for partnership taxation that explained how my capital account was being calculated across multiple PTPs. For your questions about selling and rebuying, their analysis showed that most PTPs don't actually track individual buys and sells within a year with perfect accuracy - instead they typically use monthly or quarterly snapshots of ownership. This often results in allocation issues that their software helps identify. It also has a feature that specifically tracks UBTI across multiple partnerships to help with IRA planning.

I just wanted to follow up about my experience with taxr.ai for my PTP tax issues. After asking about it here, I decided to try it with my complex portfolio of real estate and energy partnerships. The system was actually able to identify that one of my PTPs had incorrectly allocated UBTI to me during a period when I had temporarily sold and rebought within the same quarter. They have this neat feature that maps out your ownership periods against the partnership's income recognition patterns, which confirmed what someone mentioned above - most PTPs only track ownership changes at certain intervals, not daily. This explained why I was getting seemingly random UBTI amounts when trading in and out of positions. For anyone dealing with the death scenario mentioned in the original post, the system also modeled how the step-up in basis would affect future K-1 reporting, which was incredibly helpful for estate planning. Definitely worth checking out if you're dealing with multiple PTPs.

I've struggled for YEARS trying to get through to someone at the IRS who actually understands PTP taxation. Regular agents seem completely lost when I mention things like UBTI in IRAs or negative capital accounts. I finally discovered Claimyr (https://claimyr.com) which got me connected to a specialized IRS agent who actually knew about partnership taxation. You can see how it works here: https://youtu.be/_kiP6q8DX5c I specifically asked about your scenario #2 - selling and rebuying PTPs within the same year. The IRS specialist confirmed that your basis tracking gets messy in these situations, and the responsibility falls on you, not the partnership, to maintain accurate records. He explained that wash sale rules don't apply to partnership interests in the same way they do for stocks, but your adjusted basis calculations still need to account for the temporary period you weren't an owner. For those PTP holdings in IRAs, the agent clarified that while you don't personally pay tax on the UBTI, the IRA itself might need to file Form 990-T and pay taxes directly from the IRA if UBTI exceeds $1,000.

I need to eat some crow here. After my skeptical comment, I decided to try Claimyr myself because I had a nagging question about my PTP K-1s showing UBTI in my IRA. I've been trying to figure out how to report this correctly for months with no luck. Got connected to an IRS rep in about 35 minutes (while I was doing other things). The agent explained that my IRA custodian should be filing the 990-T for UBTI over $1,000, but many smaller custodians don't properly handle this. They directed me to specific sections in Publication 598 that address UBTI in IRAs and explained how to approach my custodian about proper filing. I'm still not sure they'd answer super specific questions about basis calculations for PTP sales and repurchases, but they were definitely more knowledgeable than I expected. For the record, they confirmed that for death transfers, the step-up in basis does apply to PTP interests just like other capital assets, which answers part of the original post's question.

One detail I didn't see addressed yet on your question about selling some but not all PTP units: The K-1 you receive won't distinguish between your different lots. If you sell half your position, the K-1 will just show your overall ownership percentage, and it's up to you to allocate income and deductions across your remaining lots for basis tracking. Also, regarding your observation about capital accounts affecting line 1 and 20V - you're exactly right. I've tracked multiple PTPs for years, and there's a direct correlation between capital account balance and income/UBTI allocation. This is because partnerships allocate income based on your capital interest, which changes as distributions reduce your capital account. For death transfers in taxable accounts, the step-up helps reset negative capital accounts, which can be a huge benefit. But for IRAs, the UBTI issues persist regardless of owner death since the IRA itself is the partner, not the individual.

One often overlooked issue with PTPs is how suspended losses affect your situation when selling. If you've received K-1s with losses that were suspended due to passive activity or at-risk rules, those suspended losses become deductible when you completely dispose of your interest. But for your scenario #2 (sell and rebuy), you technically haven't fully disposed of your interest for tax purposes if you rebuy within the same year. This means those suspended losses remain suspended despite the sale transaction. For the UBTI reporting on line 20V, death transfers can be especially confusing. Technically, the UBTI character passes through to the heir, but the step-up in basis can reduce future UBTI by giving you a higher basis to offset against UBTI income.

The relationship between capital accounts and UBTI/income allocation you mentioned is spot-on, and there's actually a specific reason for this. Partnerships are required to allocate items in accordance with partners' interests in the partnership, which is primarily determined by capital account balances under Section 704(b) regulations. When your capital account becomes more negative (through distributions exceeding your basis), your economic interest in future partnership income decreases proportionally. This is why you see lower per-unit income and UBTI when capital accounts are more negative - you're essentially getting a smaller slice of the same pie. For your death scenario question, there's an important distinction many people miss: while the step-up in basis applies to the fair market value of the PTP units, it doesn't directly reset your capital account with the partnership. The partnership maintains its own records of your capital account, which continues to reflect the cumulative income, losses, and distributions. However, for tax purposes, your new stepped-up basis can significantly reduce or eliminate the taxable gain when the inherited PTPs are eventually sold. One practical tip: if you're actively trading PTPs, keep detailed records of your holding periods and corresponding K-1 amounts. The partnerships' quarterly ownership snapshots mean your K-1 might not perfectly match your actual trading activity, and you'll need to be able to support any adjustments on your return.