That is correct on the FEDERAL return. But not the NC state return. For NC, one has to add back to income the expenses written off on the federal return (taking away the double dip for state), and then pay income taxes on that amount.
My question had been how to note that, since Turbotax apparently doesn't understand that difference... But I was able to figure it out - I had to open the K-1 worksheet INFORMATION FORM and was able to add a state addition to income there. And then everything was correct on both the federal and state returns.
