The Partner's Adjusted Basis Worksheet is the IRS-required calculation for tracking your MLP cost basis. This is the definitive line-by-line reference with realistic MLP numbers on every line.
By Lucas Andersen — Last updated April 9, 2026
The Partner’s Adjusted Basis Worksheet appears in the IRS Partner’s Instructions for Schedule K-1 (Form 1065), page 2. It is not a form you file — it is a computation worksheet you must complete every year you hold MLP units. Your ending basis each year (Line 18) becomes next year’s beginning basis (Line 1). If you skip a year, every subsequent year’s basis is wrong. When you eventually sell, Line 18 is the number the IRS expects on Form 8949 — not the cost basis your broker reports on 1099-B.
Line 1 — Beginning of year basis: For year 1, this is your total purchase price (e.g., 500 EPD units at $26 = $13,000). For subsequent years, it is the prior year’s Line 18 ending basis. Line 2 — Contributions during the year: Cash or property contributed to the partnership. For publicly traded MLPs, this is $0 — you don’t make capital contributions after purchase. Line 3 — Increase in share of liabilities: Compare Item K on this year’s K-1 to last year’s. If ending liabilities exceed beginning liabilities, the increase goes here. Under IRC §752, increases in a partner’s share of partnership liabilities are treated as deemed cash contributions — they add to basis. For 500 EPD units, a typical liability increase is $200–$500/year.
Lines 4a through 4o capture only POSITIVE income items from your K-1. Negative amounts (losses) are excluded here — they go to Line 11. Line 4a (Box 1, ordinary income): Usually $0 for midstream MLPs because Box 1 is typically negative (the partnership’s depreciation exceeds its allocated revenue). If Box 1 is positive — more common with fuel distribution MLPs like SUN — that amount enters here. Lines 4b-4j (Boxes 2–11): Rental income, interest, dividends, royalties, short-term capital gains, long-term capital gains, §1231 gains, and other income. Most are $0 for typical midstream MLPs, but check each box. Line 4m (Box 18A): Tax-exempt income. EPD typically reports a small amount here ($25–$75 for 500 units). Line 4o: Total of all positive income items. This is the amount that increases your basis before distributions hit.
Line 5: §737 gain — $0 for all publicly traded MLP investors. Line 6: Excess depletion — $0 for pipeline MLPs (relevant for royalty MLPs like NRP or BSM). Line 7: Subtotal = Lines 1 + 2 + 3 + 4o + 5 + 6. This is your “high water mark” — the maximum basis before distributions and losses reduce it. For the EPD example: $11,400 + $0 + $350 + $25 + $0 + $0 = $11,775.
Line 8a (Box 19A): Total cash distributions received during the year. This is the primary driver of basis erosion. For 500 EPD units at $2.05/unit: $1,025. Line 8b: Property distributions ($0 for virtually all retail MLP investors). Line 8c: Total distributions (8a + 8b). Line 9: Decreased share of liabilities from Item K. If ending liabilities are LESS than beginning, the decrease goes here as a basis reduction. Line 10: Basis before losses = Line 7 − Line 8c − Line 9. This number cannot go below zero. If distributions would push it negative, the excess becomes taxable gain under IRC §731(a)(1). See what happens when basis reaches zero.
Line 11: Total losses = absolute values of all negative K-1 items (Box 1 ordinary loss, Box 2 rental loss, Boxes 9–11 capital losses) plus §179 deductions, plus other deductions (Box 13), plus prior year suspended losses from Line 13. For 500 EPD units: Box 1 loss of $480 + $0 prior suspended = $480. Line 12: Allowable losses = the lesser of Line 11 or Line 10. Losses are limited to available basis. Line 13: Suspended losses = Line 11 − Line 12. These carry forward to next year’s Line 11. If your basis is healthy, Line 13 is $0. If basis is thin, losses get trapped here and accumulate. Line 14: Basis after losses = Line 10 − Line 12.
Lines 15-17: At-risk limitation under §465. For most MLP investors holding publicly traded units, the at-risk amount equals the tax basis — no additional limitation applies. These lines pass through unchanged. Line 18: Ending adjusted basis. This is the final number. It becomes Line 1 next year. When you sell, Line 18 is the basis the IRS expects on Form 8949. Your broker does not have this number.
The following shows the complete 18-line worksheet for 500 EPD units in their second year of ownership. Each line shows the computed value and the K-1 source.
| Line | Description | K-1 Source | Amount |
|---|---|---|---|
| 1 | Beginning basis | Prior year Line 18 | $11,400 |
| 2 | Contributions | — | $0 |
| 3 | Liability increase | Item K (ending − beginning) | $350 |
| 4a | Ordinary income | Box 1 (if positive) | $0 |
| 4b–4l | Other income items | Boxes 2–11 (if positive) | $0 |
| 4m | Tax-exempt income | Box 18A | $25 |
| 4o | Total income items | Sum of 4a–4n | $25 |
| 5 | §737 gain | — | $0 |
| 6 | Excess depletion | — | $0 |
| 7 | Subtotal (high water mark) | 1+2+3+4o+5+6 | $11,775 |
| 8a | Cash distributions | Box 19A | $1,025 |
| 8b | Property distributions | Box 19B | $0 |
| 9 | Liability decrease | Item K (if decrease) | $0 |
| 10 | Basis before losses | 7 − 8c − 9 | $10,750 |
| 11 | Total losses | |Box 1| (if negative) | $480 |
| 12 | Allowable losses | Lesser of 11 or 10 | $480 |
| 13 | Suspended losses | 11 − 12 | $0 |
| 14 | Basis after losses | 10 − 12 | $10,270 |
| 15–17 | At-risk limitation (§465) | Usually no change | $0 adj. |
| 18 | Ending adjusted basis | — | $10,270 |
After just 2 years, IRS basis is $10,270. The broker shows $13,000 (the original purchase price). Gap: $2,730 (21%). The basis worksheet captured four adjustments the broker missed: $350 liability increase, $25 tax-exempt income, $1,025 in distributions, and $480 in ordinary losses. Each of these came from specific K-1 boxes that brokers never receive.
When you sell MLP units, you report on Form 8949. The “cost or other basis” column must reflect your K-1-adjusted basis — Line 18 from your most recent worksheet. Your broker’s 1099-B reports your original purchase price, which ignores every K-1 adjustment since purchase. If you use the broker’s number, you underreport your gain. The IRS will receive the K-1 data from the partnership and compare it to your reported basis. The discrepancy triggers a CP2000 notice. Additionally, part of your gain at sale is §751 ordinary income — the accumulated depreciation that reduced your basis each year is recaptured and taxed at up to 37%. Line 18 is the foundation for both the total gain calculation and the §751 split.