Does Business expenses show up as Self-employment income loss on K1 column 14 for GP only?

[csrinu15]

We have an LLC with two members through which we invested in another LLC. The LLC we invested in gave us K1, in which we have line 2 with a loss and line 19 with code A and distribution amount, and 20 with z statement.

We have entered the details from the K1 we received along with some business expenses. When Turbo Tax generated the K1s for the partners, we are seeing a negative amount in Line1 and Line 14(Code A) for General Partner. This amount is exactly half of the business expenses. But the LP has nothing in Line1 and 14. Are business expenses considered self-employment loss in K1? Is it correct?

Neither distributions nor the rental income loss is self-employment earnings. Why are we seeing losses in line 14? 

We have a similar situation in 2021 along with business expenses, and k1s were generated by different software. That K1 has a negative amount in line 1 but nothing in line 14 for both GP and LP. Why we are seeing the -ve amount in line 14 for GP in the 2022 K1 generated by Turbotax business?

[PatriciaV]

Yes, General Partners who actively participate in an LLC have self-employment earnings on most income (loss).

According to IRS Instructions for Form 1065 Line 14a Self-Employment:

General partners' net earnings (loss) from self-employment do not include the following.

• Dividends on any shares of stock and interest on any bonds, debentures, notes, etc., unless the dividends or interest are received in the course of a trade or business, such as a dealer in stocks or securities or interest on notes or accounts receivable.
• Rentals from real estate, except rentals of real estate held for sale to customers in the course of a trade or business as a real estate dealer or payments for rooms or space when significant services are provided.
• Royalty income, except royalty income received in the course of a trade or business.

Limited partners treat as self-employment earnings only guaranteed payments for services they actually rendered to, or on behalf of, the partnership to the extent that those payments are payment for those services.

Distributions of capital are not taxable income to any partner unless the distribution exceeds the partner's adjusted basis.

TurboTax will allocate the appropriate net earnings to Line 14a for all General Partners on a partnership tax return.