Self-Charged Interest

[hfluss]

The K-1 I received for a real-estate partnership has a 5 digit net real estate rental income loss (line 2) and a little under $10K interest income (line 5). The notes indicate that a portion of the interest ($1,459) is "self-charged interest income" and correspondingly, part of the line 2 loss ($1,459) is "self-charged interest expense".

I understand from IRS Pub. 925 that this interest income may be re-characterized as passive income and taken against the line 2 loss. The question is how to do it in Turbotax.

What I think works (using forms) is adding a line for -$1,459 on my Schedule B Interest Income Smart Worksheet for the K-1 self-charged interest and moving that to the passive side by adding $1,459 on Section A of the K-1 worksheet ("Passive Activity Adjustment to Income or Loss"), line 1f, "Interest expense". It seems to flow through properly, reducing the passive loss carryover by $1,459.

Does this make sense?  Any other way of handling this situation?

Thanks!

[Anonymous_]

I believe you are correct in that you need to handle this scenario entirely in Forms Mode as TurboTax does not support self-charged interest income/expenses.

Passive Activity Self-Charged Interest Income/Expenses: The program does not support
reporting self- charged interest income or expense related to a passive activity as either passive
activity gross income or passive activity deduction. See the IRS Instructions for Schedule K-1 for
more information.

See https://digitalasset.intuit.com/DOCUMENT/A6QrdFCgW/010421-2020-unsupported-calcs-L1FQfTTgn.pdf