Question

1231 Losses

Forum|Forum|1 year ago
July 31, 2024
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For Tax Year 2023, I am a limited partner in Partnership A whose only asset is a limited partnership interest in Partnership B. Partnership B has/had only two activities...a vacant lot and a large commercial development project. Partnership B could no longer fund the cash needs of the development project and sold it to the project lender at a loss in 2023. The purchase price was the outstanding loan balance. My K-1 for 2023 from Partnership A includes a 1231 loss on line 10 of 120,000. My tax advisor assures me that the 1231 loss can be recognized in 2023 and is not a passive loss because the activity was disposed of by Partnership B. Turbotax Premier has no provision to recognize this loss currently and carries it over to future periods.

An instruction box for Form 8582 (Passice Activity Loss Limitations) indicates: "Schedule E Rental Real Estate Property without Active Participation:
If the Schedule E has all of the following conditions: (1) The Property Type is other than "6 Royalties" (2) The "Active Participation" box is not checked (3) The "Other Passive Exceptions" box is not checked and (4) If there is a current year gain and the Property Type is not "5 Land" or "7 Self-Rental".

I can not find the "Other Passive Exceptions " box. Does it exist and if so where? Will this allow me to recognize my 1231 loss in the 2023 tax year? If not, is there another way to enter this transaction on TurboTax and recognoze the loss in 2023? (I have seen other threads that indicate that TurboTax can not handle the transaction properly. Find it hard to believe because lesser tax software such as TaxSlayer handles this simply beacause the asset was sold.)

A

Anonymous_

Employee

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M

Mike9241

1231 Losses

For Tax Year 2023, I am a limited partner in Partnership A whose only asset is a limited partnership interest in Partnership B. Partnership B has/had only two activities...a vacant lot and a large commercial development project. Partnership B could no longer fund the cash needs of the development project and sold it to the project lender at a loss in 2023. The purchase price was the outstanding loan balance. My K-1 for 2023 from Partnership A includes a 1231 loss on line 10 of 120,000. My tax advisor assures me that the 1231 loss can be recognized in 2023 and is not a passive loss because the activity was disposed of by Partnership B. Turbotax Premier has no provision to recognize this loss currently and carries it over to future periods.

you are correct. Turbotax has no easy way of handling this. The only workaround I could find is to use a second k-1 for just the project. you must indicate final K-1 and that you disposed on your entire interest in the partnership and complete the information require by that Turbotax section.