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Yes, you will need to enter it as if it were two separate K-1 forms.  On one K-1, you will enter the business activity and on the other, you will enter the rental activity.  As for box 20, code Z, this is for qualified business income so it would most likely be related to the business income as reported on line 1.  Therefore, you should report it to match the entries for box 1.

As far as your Michigan amended return, can you clarify what is happening?  Was the entire amount you paid with your original state return comprised completely of penalties?  Essentially, if your Michigan return has changed, you should still file the amended return.

Essentially, the amount to be entered on the page asking for payment should only be the total tax paid without interest and penalty payments.

Since you have already paid a portion of the penalty, another option is to let Michigan bill you for any remaining underpayment penalty.  You will find this option in the Other tax situations, Underpayment of Estimated Tax in the state interview screens.