Limited Partner Actively Participating in a Partnership's Rental Real Estate Income

Forum|Forum|6 years ago
March 22, 2020
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Publications 925 indicates that "Limited Partners aren't treated as actively participating in a partnership's rental real estate activities. This suggests that a limited partner cannot offset ordinary income with losses from a partnership's rental real estate activities. On the other hand, TurboTax Schedule K-1 (for partnerships), Part III, Line 2 has certain boxes which can be checked if one "actively participated in rental reas estate activities". I checked this box to indicate that I do actively participate. Also, I am a Limited Partner and I also checked this box in TurboTax Sch K-1, Part II, Line G. With these two boxes checked, TurboTax is offsetting my ordinary income with losses from my partnership's rental real estate activities. Could you tell me if TurboTax is treating this correctly, and if so why does it seem inconsistent with Publication 925? Thanks, Steve

Best answer by Anonymous_

Go with the Publication since it is essentially repeating what is written in Section 469(i)(6(C) of the Code:

Except as provided in regulations, no interest as a limited partner in a limited partnership shall be treated as an interest with respect to which the taxpayer actively participates.

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Anonymous_Answer

Employee

Go with the Publication since it is essentially repeating what is written in Section 469(i)(6(C) of the Code:

Except as provided in regulations, no interest as a limited partner in a limited partnership shall be treated as an interest with respect to which the taxpayer actively participates.

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Anonymous

Thanks for your response. I think it's the right answer, even if not the best one from the point of view of the tax liability.

I do have a follow up question.

Could you tell me how I can review the TurboTax Interview questions that I answered, that caused the incorrect boxes to be checked on the TurboTax Sch K-1 form?

It seems like I must have misinterpreted some of the questions, and I'd like to understand why, but when I go through the Interview again, I never get to the point where it asks those questions again.

Thanks for your help,

Steve

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Anonymous_

Employee

@343255 I cannot seem to get to any question even remotely related to active participation in Step-by-Step. I am, however, able to enter Forms Mode and check the box on the K-1 (which I believe I should not be able to do).