“My wife and I bought a condo in 2021 and got a very small amount of rent in 2021, which we did as a sole proprietorship on our 2021 taxes, via TurboTax Home and Business. I think it was a Schedule E.”
If it was reported on Schedule E, it was NOT a business, it was not reported as Sole-Proprietorship (Self-Employment) income.
Schedule E reports rental income. This is how rental income is normally reported. It is passive income.
A Sole Proprietor files as a business and uses Schedule C. It reports EARNED income.
Question 1: Where do I enter the K-1 losses on the Home and Business desktop software?
Personal
Personal Income
Business Investments and Estate/Trust Income
Schedule K-1
“Question 2: How do I let the TurboTax software know that I changed the business from a sole-proprietorship to a partnership?”
You will need to report the income and expenses for 2022 (although you may not have any) and report that the rental was converted to personal use.
This will close out the rental.
If you took any bonus depreciation and/or Section 179 Deduction on assets you added to the rental, such as appliances, the basis will need to be adjusted for that depreciation and/or deduction.
Any depreciation on the building will adjust your basis. So if you purchased the condo for 275,000, and depreciated it 10,000 for the one year it was a rental, your adjusted basis is 265,000.
The basis of the property for the partnership will be your adjusted basis.
Depreciation starts over for the Partnership. (This is reported on Form 1065)
Question 3: Can I still utilize that $3,100 carryover loss from 2021 and if so, how do I do that, or do I simply lose that by changing from the Schedule E to two K-1's?
Yes, you can list the loss carry-over on the K-1’s.
HERE are links that address that situation.
Passive Activity Loss
Enter Passive Loss from Prior Years
@korz
[Edited 03/20/2023 | 5:08 pm PST]
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