Just a clarification also on your capital account vs your tax basis. The capital account is the partnership reconciling your account with what is on the books, but not on the K-1 yet, just like balancing a checkbook, you don’t use that number as your basis because there may be something in that reconciliation that will actually hit next years K-1.
Also, your tax basis can include recourse, non-recourse, and qualified non-recourse financing, plus your capital you contributed, plus K-1 earnings, minus K-1 deductions, minus distributions. You deduct losses if you have enough tax basis. Your tax basis can never go below zero. Your capital account usually won’t add financing into the figures.
But before you take that loss, you also have to check your at risk limitations. You have to look back at financing and add only the financing you are personally at risk for. Recourse and Non-recourse financing usually doesn’t count unless you signed for the loan. Qualified non-recourse (like real estate loans) usually do.
Then you have to apply the passive activity limitations, in other words, losses on a K-1 that you are not actively or materially participating in can only be offset by profits from another passive activity, or are carried forward to a future year. Don’t worry about passive losses, TurboTax handles those calculations and carry forwards.
But TurboTax does not calculate your tax basis, so just keep a running spreadsheet for those numbers in case you’re ever audited.
