Hello,
I'm really struggling to understand how K1 income and deductions impact my tax return in the context of being an LP in an investment fund.
I mostly have two relevant items here:
Some income under line 11, code A, as "Other portfolio Income"
Some deductions under line 13, code W as "Other portfolio deductions"
Regarding the income, I selected in Turbotax:
"Other Portfolio Income (Loss) to be Reported on Schedule E, Page 2"
I assume that is correct?
Regarding the deductions, I can either select:
A) Nonpassive Deductions to be Reported on Schedule E, Page 2
That allows for my deductions to be deducted and offset my income above.
B) Miscellaneous Itemized Deductions
That causes my deductions to be found nowhere in my printed tax return and do not offset any of the income
I assume the key is understanding wether or not the deductions are passive or non-passive? For which the footnotes have two contradicting paragraphs:
1) Prior to January 1, 2018, taxpayers could deduct miscellaneous itemized deductions that exceeded 2% of Adjusted Gross Income ("AGI"). Starting in 2018, individual taxpayers can no longer deduct such expenses. Your share of these deductions is reported in Box 13 Code W as "Other Portfolio Deductions." Please consult your tax advisor.
2) Unless otherwise noted, the distributive share of all income and expense items reported to you on Schedule K-1 is from trading personal property and should not be considered as derived from a passive activity under Treasury Regulation Section 1.469-1T(e)(6). As such, your distributive share of income, gains, losses and/or deductions reported to you on your Schedule K-1 should not be subject to the passive activity limitations of Internal Revenue Code Section 469. Please consult your tax advisor.
That makes if very confusing to me as wether the deductions are non-passive and deductible or if they are misc itemized deductions that can't be deducted since 2018?
If they can't be deducted (which is what I think is the case?) I do not understand what's the logic here. My income within the fund increases my tax liability but my losses are not able to reduce it? I end up potentially paying income taxes on a net loss if I have more deductions than income? Seems weird?
Any element of clarification would be much appreciated... thanks
