I don't agree with @ColeenD3
Based on your facts, you acquired an interest in a trade or business in an LLC. Since neither of you materially participate in the business this will be a passive activity for you.
The tax impact on interest expense is determined under the tracing rules. You used your $$ to invest in the above mentioned activity. The activity from this LLC will be passive for you, and as such, the interest expense attributable to the borrowing will also be passive.
This should be reported on the 8582 as interest expense attributable to a passive activity and subject to the passive activity limitations. I do not know if TT has the ability to link this interest expense with the specific passive activity. If not, set up a separate K-1 input screen for this passive activity and ONLY input the interest expense figure.
Investment interest expense is interest allocable to proceeds that generate investment type income such as interest, dividends, stock gains / losses, etc.
Investment interest expense would be applicable if this were a C corporation only.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
