1040 not taking loss on K-1 box 1 into account?

Forum|Forum|3 years ago
March 29, 2023
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I have a K-1 for rental real estate, box 1 ordinary income (loss) shows a loss of -$3000, box 2 shows income of $8000. I’m expecting to see a net gain in my other income line of $5000 on the 1040, but it’s showing $8000. I tried checking off the boxes saying it’s not a passive activity, but that didn’t change the return. Should I manually net out on the K-1?
thank you

Best answer by JamesG1

Do not manually net out the K-1 income.

At the screen Choose Type of Activity, did you select This K-1 reports amounts in more than one of boxes 1,2 and 3? See here.

Since your K-1 reports amounts in more than one of box 1, 2 or 3, the partnership is involved in more than one type of activity. Each activity needs to be reported separately in TurboTax.

Enter the business activity amount, box 1, on one K-1
Enter real estate rental activity amount, box 2, on another K-1.

That will correctly report the two separate activities.

@Taxes-stink

JamesG1Answer

Do not manually net out the K-1 income.

At the screen Choose Type of Activity, did you select This K-1 reports amounts in more than one of boxes 1,2 and 3? See here.

Since your K-1 reports amounts in more than one of box 1, 2 or 3, the partnership is involved in more than one type of activity. Each activity needs to be reported separately in TurboTax.

Enter the business activity amount, box 1, on one K-1
Enter real estate rental activity amount, box 2, on another K-1.

That will correctly report the two separate activities.

@Taxes-stink

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Taxes-stinkAuthor

Thank you very much for the reply, with your reply and reading the tips on Turbotax, it makes more sense. Ironically, I was on the phone last night with TurboTax support, after not being able to figure out any alternatives, she told me to net it out. I didn't feel comfortable with that, as I believe all the numbers should flow from the "Easy step".

Not sure of this background information matters, there isn't another business aside from rental property. The ordinary loss in box 1 is due to payments made to the super that helps with repairs of the rental property. The Accountant put them down as "guaranteed payments".

The follow-up question I have is if it matters how I break out the 1 K-1 into 2 K-1's in Turbotax? I thought I should include the loss amounts on one K-1 (this would include box 1, box 14 code A, and Schedule A, which has the breakdown of ordinary income/loss and rental income. The 2nd K-1 would have box 2 entered, box 20 code N and Z.

Thanks

ThomasM125

You seem to be OK with how to enter the separate K-1 schedules for the most part. For the box 20 entries though, you may need to make sure the code Z (qualified business income) is entered on the correct K-1 schedule. It may pertain to either ordinary income (box 1) or rental income (box 2), so you should put it on the correct K-1 entry. The same applies to code N, for business interest expense. You need to know if that applies to the rental or the business, and put it on the appropriate K-1 schedule.

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