I have made a similar observation to @davidtoby above on April 11, 2021 in that entering a net loss for a passthrough entity in the 199A section of an auxiliary K-1 increases my tax due. This seems to be a calculation error or bug in Turbotax.
I have two schedules K-1 to enter, one of which involves multiple 199A pass through entities in rental real estate, each of which in turn has a net loss. My other K-1 has a positive income and does not involve a passthrough entity.
Since TT only has the ability to handle one pass through entity (Box 20, code Z) per K-1 statement, I have followed the advice of several experts on this site to create an auxiliary K-1 schedule in TT for each additional passthrough entity beyond the first. According to the advice, for each auxiliary TT schedule, I entered only the partnership information from my received K-1, leaving all boxes blank except Box 20 for which I entered code Z. I then entered the passthrough entity in the associated 199A section of the auxiliary K-1 schedule.
TT, however, does not seem to handle the calculations correctly in the above scenario. For example, as each auxiliary K-1 is created, when entering a net loss of the passthrough entity (which should be disallowed for tax credit purposes anyway), my taxes owed increased. What appears to be happening is that when the value of box 2 is either blank or non-negative, TT takes the net loss of the passthrough entity and effectively allows it to be aggregated with the net positive income from the other K-1, resulting in a decreased credit to the taxpayer. So each auxiliary K-1 having a net loss and with box 2 being blank or 0, causes a decrease in the tax credit. In my case, I was able to switch the order of entry of the various passthrough entities, so the largest one was either included in the first K-1 vs in an auxiliary K-1, and the tax due would fluctuate accordingly – which seems to prove a bug is present.
WORKAROUND: By experimentation, I have found that putting a value of -1 (a loss of $1) in the box 2 for each of the additional TT K-1 schedules seems to solve the problem without substantively changing the tax outcome from what it should be.
Can someone please reproduce this issue and either explain or fix?
