K-1 change from non-passive to passive

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?

1820

1 Best answer

Level 12

Mar 10, 2021 12:04:00 PM

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

Level 12

Mar 9, 2021 7:35:31 PM

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

Level 2

Mar 10, 2021 6:16:13 AM

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?

Level 12

Mar 10, 2021 12:04:00 PM

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

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K-1 change from non-passive to passive