K-1 change from non-passive to passive

[kb12341]

I used to work full time for a startup formed as an LLC.  Each year I received a K-1 and reported it as non-passive income.  I have since moved on and am no longer actively involved with the LLC.  Do I now switch over to reporting it as passive income?  Do I wait 5 years (one of the tests asks about being actively involved for 5 out of the last 10 years)?

Second question.  If I have carried over non-passive loses from previous years can they still be applied?

[M-MTax]

It's passive if you don't materially participate for any year.

[kb12341]

So there is no issue with changing between passive and non-passive from year to year (and it is the correct thing to do) if involvement with the business changes as well?

[M-MTax · Accepted solution]

Yeah, it can change....one year you may materially participate and the next year you may not.