Unreimbursed Partnership Expenses (UPE) not deducted for Limited Partners

Forum|Forum|3 years ago
March 29, 2023
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I am a Limited Partner of a law firm who received K-1 this year.

When I chose Limited Partner from interview, Turbotax won't deduct any of my Unreimbursed Partnership Expenses (UPE).

I answered that I am materially participating and also checked both "I am required to pay supplemental business expense…" and "All of my investment in this activity is at risk" buttons.

However, no matter what I do in the UPE section, Turbotax won't deduct any taxes.

Turbotax deduct those expenses only if I change my partnership to General Partner.

Is this working as intended? Can Limited Partners not claim UPE at all in Turbotax?

TurboTax Self Employed Online

Best answer by Rick19744

Mike --

Thanks for this, very helpful. I see now another problem in trying to implement your work-around. My income from the LP is guaranteed payments, box 4a. In TT, there is a "materially participated" option for box 1 (ordinary business income) and box 2 (net rental real estate income), but none for box 4a. Any suggestions for what I should do? Things that come to mind:

--Call my income ordinary business income even though the K1 says otherwise, but I wonder if that will screw up the return in other ways that I don't know about;

--Correct this by hand with manual override

--Enter a new K-1 into TT and call it "UPE" so it gets onto line 28 Sch E

Thanks again

A couple of comments:

Not sure how you entered the basic information in TT, but in most states an LLP is a type of general partnership.
So in my mind, I would indicate in TT that you are a general partner and that should solve the problem based on the original posters comment.
I would not recommend overrides as TT will not be able to be efiled and paper filing only leads to a potential quagmire.
Material participation has nothing to do with line 4a, as a guaranteed payment is essentially the same as a wage; earned regardless of the income of the partnership.

DawnC

Employee

Yes. For a partner to be permitted to deduct unreimbursed partnership expenses on his or her personal return both of the following elements of this exception must be met:

(1) the partnership agreement must require the partner to pay such expenses without having a right to be reimbursed; and

(2) the claimed expenses must be able to be substantiated in the case of an audit by the Internal Revenue Service.

After you indicate that you are required to pay expenses and all your activity is 'at-risk', you will proceed to enter your expenses. Go through the entire section before checking Schedule E. There is a question Did you receive any reimbursement? that has to be answered. Proceed through the section until you get back to the summary page.

To verify the expenses are being included in the Self-Employment tax calculation, view the Schedule E - Suppl Exp - P page in your tax return. You should see the total unreimbursed expenses on Line 18. Underneath that, you should see where those expenses are subtracted from the K-1 net earnings. The net amount is on Line 22 and is used to calculate your self-employment tax on Schedule SE.

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sky3845Author

Thank you so much for the reply!

It was very helpful.

In that case, I think online Turbotax has a bug. If possible, could you file a bug to engineering team?

Currently, online version for TY2022 is not deducting *any* UPE when I chose "Limited Partner or other LLC member" from the 3rd interview question (Choose the Type of Partner).

AliciaP1

It would be helpful to have a TurboTax ".tax2022" file that is experiencing this issue.

You can send us a “diagnostic” file that has your “numbers” but not your personal information.  If you would like to do this, here are the instructions:

In TurboTax Online, go to the black panel on the left side of your program and select Tax Tools.

Then select Tools below Tax Tools.
A window will pop up which says Tools Center.
On this screen, select Share my file with Agent.
You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number.

In TurboTax CD/Download versions, go to the black panel on the top of your screen and select Online.

Scroll down to and select Send tax file to Agent.
You will see a message explaining what the diagnostic copy is.  Click send through this screen and then you will get a Token number.

Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

@sky3845

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