I was a passive member of a K-1 for two years [simplifying my actual situation slightly]. I paid $2500 to join and got $2500 back when I left. No other money changed hands. The first year's K-1 shows a capital gain of $500 on line 17 of my 1040 (as figured by Turbotax). My final K-1 shows a loss of $1000 on the same line. Thus, over the lifetime of the K-1, it seems I've generated a total loss of $500.
As a layperson, I'm confused by this loss, since I did not actually gain or lose any real money; I got back my initial investment dollar-for-dollar. In the reverse scenario, if the final K-1 showed a net *gain* of $500, I presumably would not be ok paying income tax on that money I never actually got (and never will). So how can I be entitled to the (nonexistent) loss?
Can it be true that I'm actually entitled to take this loss on my 1040, or does this indicate a mistake somewhere on at least one of the K-1s?
