K-1 losses have layers of limitations. The basis limitation is a limitation on the amount of losses and deductions that a partner of a partnership can deduct. The basis limits are the first of three limitations that are applied to Schedule K-1 losses and deductions. After the basis limits are applied, the At-risk limits (Form 6198) are applied. If losses are allowed by the basis and at-risk limits, the passive limits (Form 8582) are applied, if applicable. All of these questions can be answered during the K-1 entry process.
You must have a basis in the partnership; you must be at-risk in the business, and you must be an active participant in the business to have your K-1 losses offset other income on your tax return.
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