Out of state partnership

[IRSisComplicated]

I am a NJ resident. As a general member of an LLC partnership formed in CT and doing business only in CT, I have been issued a Schedule K-1 (Form 1065) and a Schedule CT K-1 from the partnership. Both the federal and CT state K-1 shows only a loss for 2019.

My questions:

- Since I am a NJ resident, do I have any filing requirement in CT?

- The partnership has not issued a NJK-1 to me but instead, has given me a CT K-1. Do I need to include the CT partnership loss on my NJ State tax return? If yes, how (what line on NJ 1040 or what form)? Any additional filing requirement as a general member of the partnership?

[DianeC958]

No, you do not need to file a CT tax return.  

You must file a Connecticut income tax return if your gross income for the taxable year exceeds:

• $12,000 and you are married filing separately;

• $15,000 and you are filing single;

• $19,000 and you are filing head of household; or

• $24,000 and you are married filing jointly or qualifying widow(er) with dependent child.

No, you do not include the information from the CT K-1 on your NJ tax return.

[Rick19744]

To expand on your issue going forward, make sure you understand how the partnership (PE) handles nonresident members when it generates income.

For tax years beginning on or after 1/1/2019, the PE may file a composite return on behalf of the nonresident partners / members.  If that is done, the nonresident tax is remitted to CT by the partnership.  You (as a nonresident of CT) will not have any further filing requirement for CT; unless you have other CT activity.

[IRSisComplicated]

Thanks to all who has replied.

Follow up question:

Do I have any reporting requirement for the partnership or my share of the loss in NJ as a resident? I read elsewhere that I have to include my federal K-1 with the NJ 1040 filing though the loss (or if it's a profit in future) will have no impact on my NJ tax. Is it correct?

[Rick19744]

NJ, like most states, taxes residents on all income regardless of where earned.

The issue that occurs when a taxpayer also files in another state and pays tax to that state as a nonresident, there is the "double" tax on the same income; nonresident state and state of residence.

States adjust for this by providing a credit for taxes paid in other states.  It is not always $1 for $1, but not completely double taxed.  New Jersey provides for this as well and you will see that on page 30 of the instructions for your NJ-1040.

https://www.state.nj.us/treasury/taxation/pdf/current/1040i.pdf

Since you have a loss, there is no double tax and you just reduce your NJ tax by the loss on the K-1.

Line 21 of the tax return states to attach a copy of the federal K-1.  Not sure how TT handles this if at all.

You have two options:

1. Efile which most likely will not include a copy of the K-1.  You may receive a notice to send a copy in to NJ in order to finalize the processing (and you may not get a notice)
2. Paper file the return and include a copy of the federal K-1

[IRSisComplicated]

Thanks for your help.

You mentioned, "you just reduce your NJ tax by the loss on the K-1." However, I tried TT, NJ State e-file, and one another e-file software. All them seem to include my federal K-1, however, none of them take my loss into account for NJ state filing (i.e. my NJ taxable income or the NJ tax is not reduced).

Just to see what difference it would make, I entered a profit and sure enough, a profit increases my NJ taxable income and tax.

Now I am confused; are all tax software inaccurate or NJ unfairly only considers profit to collect more tax but loss is not considered?

[Rick19744]

Ok.  We may be missing some details here:

• NJ will use your federal K-1 amounts since you are a resident.  Is there a loss on the federal K-1?
• Are you passive or a material participant in the activity?
• Are you saying that the K-1 amount reduces the federal but is not reducing NJ?  Just want to make sure I understand the issue.
• If bullet 3 is"yes" you are indicating that a loss is reflected on Schedule 1 line 5

[IRSisComplicated]

Answer to the questions:

• NJ will use your federal K-1 amounts since you are a resident.  Is there a loss on the federal K-1? Yes, there is a loss on the federal K-1 (less than 2,000).
• Are you passive or a material participant in the activity? Material participant
• Are you saying that the K-1 amount reduces the federal but is not reducing NJ? Yes, that's correct. Just want to make sure I understand the issue.
• If bullet 3 is"yes" you are indicating that a loss is reflected on Schedule 1 line 5 Yes, that's correct.

[Rick19744]

Following up on your response I have two thoughts:

• Make sure your software has the most current update.  I couldn't tell whether you are using online or a download
• If your software is up to date, there is a place to contact TT support.  There may be some glitch or nuance that they are aware of. 

[IRSisComplicated]

It seems unfair but I think, that's what it is; NJ would not allow partnership loss to reduce other taxable income of a partner but if there was a profit, it would have to be added to taxable income and pay tax on it. :(

See the section on Losses on page 5 of https://www.state.nj.us/treasury/taxation/pdf/pubs/corp/git9p.pdf .

[Rick19744 · Accepted solution]

Well this does support that position if this is your only K-1:

If a loss is reported to the partner by the partnership or if a loss occurs as a result of adjustments for qualified unreimbursed business expenses, the partner will enter the loss for that partnership on Schedule NJ-BUS-1 and use it to offset income from other partnerships. If the net amount from all partnerships listed on Schedule NJ-BUS-1 is a loss, the partner should make no entry on his/her New Jersey Income Tax return in the category “Distributive Share of Partnership Income.”

[IRSisComplicated]

Thanks for your prompt help!! I only have one K-1 so for NJ, a partnership loss is my loss. :(

[akyeun]

I am a PA resident. As a general member of an LLC partnership formed in WA (Seattle, WA) and doing business only in WA, I have been issued a Schedule K-1 (Form 1065) from the partnership.  Both of the federal and WA state K-1 shows only a loss for 2019.

My questions:

- Since I am a PA resident, do I have any filing requirement in WA?

- The partnership has not issued a PA RK-1 to me but instead. Do I need to include the WA partnership loss on my PAState tax return? If yes, how (what line on PA1040 or what form)? Any additional filing requirement as a general member of the partnership?