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Schedule K-1 question

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  • FunkDoc83 FunkDoc83 
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    This is the first year we have had a schedule K-1 form from a limited partnership real estate deal.  Since these forms tend to come out closer to tax filing time, we’ve been waiting patiently for the form.  It finally arrived a day ago and my spouse was eager to put in the information so we could finally file our taxes.  We had a net income loss reported on our form this year and after putting in all our information, it didn’t seem to reduce our taxable income or increase our tax refund.  Should a net income loss reduce taxable income or increase a federal refund?  Looking for advice from those who have experience with this form.  I’m looking at you jfox!

    #202392 Reply
    ENT Doc ENT Doc 
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    Where was it reported in the K-1? Was it passive or non-passive?

    #202412 Reply
    FunkDoc83 FunkDoc83 
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    Where was it reported in the K-1? Was it passive or non-passive?

    Click to expand…

    Box 2, all questions answered in tax software make it passive

    #202446 Reply
    ENT Doc ENT Doc 
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    #202458 Reply
    Liked by spiritrider
    FunkDoc83 FunkDoc83 
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    That’s why. See:

    https://www.irs.gov/pub/irs-pdf/i1065sk1.pdf

    Click to expand…

    so because I’m passive and my income is too high for the QBI deduction, I can’t reduce my taxable income?   I’m so glad I waited to get my K-1 form for it not to make any difference!

    #202467 Reply
    Liked by Tim
    ENT Doc ENT Doc 
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    This doesn’t have anything to do with the QBI deduction as far as I can tell. You have a (passive) loss. In order to claim the QBI deduction you need actual income.

    #202469 Reply
    FunkDoc83 FunkDoc83 
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    Well thanks for helping me navigate this.  Next year I’ll be better prepared to handle it.

    #202471 Reply
    Liked by Tim
    jfoxcpacfp jfoxcpacfp 
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    Thank you for carrying my water, ENT Doc. I’ve been busy looking at K-1’s all day myself ;-). Wouldn’t change a thing about your answers.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #202515 Reply
    mb(a)CPA mb(a)CPA 
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    Just so that you are aware the passive loss that you are not currently allowed to take should show up on Form 8582 of your tax return.  This is important as you will be able to claim these losses against future passive income (or when you exit the investment).  If you try to file a return without the K-1 these carryovers will not be right and you will unnecessarily cost yourself future tax dollars.  You would also create the possibility of a matching notice from the IRS should the K-1 have positive income in a future year and you have already filed a return that does not include it (unless you take the additional time and effort to file an amended return).

    #202808 Reply
    Avatar Bogatyr 
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    Status: Physician
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    Joined: 01/19/2016

    I have a similar question to the OP. This is my first year receiving a K-1 (I invested in the WCI-advertised CityVest Pathfinder Access Fund). I have always been a tax DIY-er because my taxes are very simple, until now. I use TaxAct, and I cannot get it to generate form 6198 (At-risk loss limitations) or form 8582 (passive-loss limitations). Note that my K-1 states that all of the liabilities (and thus, presumably, the losses) are from not-at-risk activities. I called Tax Act, and the person on the phone clearly was not an expert in this, but he said that since none of my losses were at-risk, that it wouldn’t generate the form. By changing my answers to the questions a little bit I was able to generate a form 6198, but I could in no way get it to generate the 8582.

    My impression from reading the instructions to the forms on the IRS website is that I should submit these forms with my tax return in order to properly carry forward the disallowed losses. Of course, I can’t get the program to do that.

    My question for you is: do I need to submit forms 6198 and 8582 if I have no at-risk losses? If not, how do I carry forward the losses? If I do need to submit those forms, does anyone have any recommendations on what to do? Switch to Turbo Tax?

    Thanks

    #206331 Reply
    ENT Doc ENT Doc 
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    “Who Must File

    Form 6198 is filed by individuals (including filers of Schedules C, E, and F (Form 1040)), estates, trusts, and certain closely held C corporations described in section 465(a)(1)(B), as modified by section 465(a)(3).

    File Form 6198 if during the tax year you, a partnership in which you were a partner, or an S corporation in which you were a shareholder had any amounts not at risk (see Amounts Not at Risk later) invested in an at-risk activity (defined below) that incurred a loss.

    You must file Form 6198 if you are engaged in an activity included in (6) under At-Risk Activities (see At-Risk Activities below) and you have borrowed amounts described in (3) under Amounts Not at Risk (see Amounts Not at Risk later).”

    Does the middle paragraph apply to your K-1 activity?

    #206346 Reply
    jfoxcpacfp jfoxcpacfp 
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    @bogatyr, what you need to do is probably not possible with off the shelf tax software. This is a complex area and, while OTS s/w can be quite advanced, I don’t believe it was intended for such high-level situations or to lucidly explain how you should handle such areas. Since I do not use or review OTS s/w, I may be totally wrong, though.

    @ent_doc, I barely understand what that section says myself and, while I imagine @mb(a)cpa does, too, I would be surprised if a DIY taxpayer can parse it out.

    My guess is that this amount is fairly low. I can say with 99% certainty that it will not impact your current year taxes. In the future and if you continue holding this investment, you should consider paying for professional preparation to “catch up” the prior years of passive loss carry forwards to prepare for the eventuality of liquidating or the venture (hopefully) showing a profit.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #206349 Reply
    Liked by Bogatyr
    MPMD MPMD 
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    I deal with this as well.

    My quick and dirty answer i figured out (or at least think I figured out) is that passive losses cannot be deducted against non-passive income.

    I had the same experience the first time we did a K1. It had all of this passive loss and I got all excited thinking it was going to be a great thing for taxes.

    My understanding is that it all carries forward for when (if) we eventually have passive income on the biz.

    #206356 Reply
    FunkDoc83 FunkDoc83 
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    Status: Physician
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    Joined: 04/12/2018

    I deal with this as well.

    My quick and dirty answer i figured out (or at least think I figured out) is that passive losses cannot be deducted against non-passive income.

    I had the same experience the first time we did a K1. It had all of this passive loss and I got all excited thinking it was going to be a great thing for taxes.

    My understanding is that it all carries forward for when (if) we eventually have passive income on the biz.

    Click to expand…

    MPMD, did you have to file form 6198 or 8582 to carry over the losses properly?

    #206370 Reply
    Liked by Bogatyr
    Avatar Bogatyr 
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    Thanks for the replies. In the section on at-risk activities for who must file it lists things such as movie making, farming, mining, 1245 Leasing, and “Any other activities not-included in 1-5.” So who knows? I may have to get professional advice.

    #206454 Reply

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