My Schedule E Part V line 41 shows a loss of $9,859. But Form 4797 Part I line 2(g) shows a gain of $9,859 instead (Description: "From K-1"). Why?

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August 11, 2024
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This amount is a net of gains/losses from Schedule Part 1 and Part II. Why is this net loss shown as a net gain instead in Form 4797?

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Mike9241

what does 2a of form 4797 say? on what line on schedule E does the loss originate?

you could be subject to Passive loss limitation. see form 8582. it's possible that due to PAL the loss allowed on schedule E. is limited to the gain on the 4797. the 4797 gain should flow to schedule D line 11

lrambabu1Author

> what does 2a of form 4797 say?

It says "From K-1".

> on what line on schedule E does the loss originate?

Lines 21 and 32.

> you could be subject to Passive loss limitation. see form 8582.

Yes on p1 of 8582 I have a PAL of $69,958 (Part I line 3). Allowed losses (Part III line 11) are $10,380.

> the 4797 gain should flow to schedule D line 11

Yes it did, and to Form 1040 line 7

Mike9241

we can't see your return or k-1. you most likely were subject to Passive Activity loss limitation. if you are a passive partner or shareholder the ordinary passive loss (lines 1,2 or 3) shown on the k-1 including any carryover can't exceed current year passive income.

the other possibility is that the K-1 is from a publicly traded partnership (BOX D is checked on the k-1). in this case regardless of your adjusted gross income the passive activity rules apply. deductible passive losses can't exceed passive income items. There will be no 8582 because each PTP stands on its own regarding this rule.

when passive loss limitation rules apply in full at best you end up with a net of zero. thus, like in your case, the ordinary loss on schedule E which flows to schedule 1 line 5 is offset by an equal amount of capital gain form 1040 line 7.