Can I deduct section1231 loss from Schedule K1 in a partnership that I did not materially participate in from my adjusted gross income?

Forum|Forum|10 months ago
May 30, 2025
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I am using Turbotax to enter schedule k1s from my real estate partnerships that I did not materially participated in. But turbotax forms place section 1231 losses from partnership under Form 8582: Passive Activity Loss Limitations Part VII - Allocation of Unallowed Losses. Why? Don't my section 1231 losses directly lower my AGI?

Mike9241

if the partnership didn't terminate, you have a passive loss. passive losses can only be deducted against passive income. one exception to this is for real estate activities in which you actively participated, and your adjusted gross income is under $150,000. Then up to $25,000 in losses from real estate activities would be allowed (see form 8582). the other exception is if this was a final k-1 - the partnership terminated

Material participation and active participation are different.

FROM IRS PUB 925

Active participation depends on all the facts and circumstances. Factors that indicate active participation include making decisions involving the operation or management of the activity, performing services for the activity, and hiring and discharging employees. Factors that indicate a lack of active participation include lack of control in managing and operating the activity, having authority only to discharge the manager of the activity, and having a manager of the activity who is an independent contractor rather than an employee.