Get your taxes done using TurboTax

@MJ2499 It sounds like you did everything right.  And the loss coming through on Sched E is how its supposed to work.  As to why, consider a simple case:  you bought in 2019 for $20k, and you sell in 2020 for $22k -- a $2000 profit.  To keep it simple, there were no distributions and there was no Ordinary Gain on the sale.  But what did get reported is a $1000 loss in box 1 of the K-1, also in 2019.

So because of that box 1 loss, your basis is going to drop from $20,000 to $19,000.  And when you go through the sales schedule calculations, you'll be forced to declare a capital gain on your 1099-B for $3000.  But clearly you didn't make a $3000 profit....

So this is where Sched E comes in.  In 2019, when you entered the K-1 info and that $1000 loss, TT suspended it.  It becomes available when you actually generate income from the partnership.  So in our example, when you sold in 2020 that loss would have been released and you'd see a $1000 loss on Sched E, offsetting the $3000 gain on your 1099-B, and bringing you back to that overall $2000 profit.

So that's what's happening in your case.  TT sees the $1000 Ordinary Gain and is releasing suspended losses to offset it.  Because of the nuances of the suspended loss rules, TT can only release losses (if available) to exactly match gains on a partial sale.  On a complete sale, it'll release everything.

Note that in the future, your Ordinary Gains could easily exceed your suspended losses.  So even thought they offset this time, there's no guarantee of that in the future.