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Level 2

Deducting 1231 loss from income

I am a partner at a LLC with a real estate investment. This investment incurred loss and the property was disposed for a loss and the LLC closed in 2019. I have a K-1 issued to me with net real estate loss (Box 2 of K-1) and 1231 loss (Box 10 of K-1). When I key in this information in my personal tax returns, these losses do not seem to have any impact (i.e. does not reduce my income or tax obligations).  


Based on the article referenced below, 1231 losses should reduce ordinary income (even if those are passive losses since the property has been sold). But I dont see that happening in Turbotax (I am using 2019 Home & Business Windows version).


Appreciate any help or insights.


3 Replies
Level 3

Deducting 1231 loss from income

You have to dispose of your interest in the llc and until then you're subject to the passive loss rules....after the disposition you need to know your inside basis and outside basis and you'll get the full loss at that time. You need a tax pro for these more intricate setups.

Expert Alumni

Deducting 1231 loss from income

Make sure that you checked "This partnership ended in 2019" and "Disposed of a portion of my partnership interest in 2019" on the "Describe the Partnership" screen where those options are listed.


Also, make sure any disallowed losses prior to 2019 are entered as "carryover" losses.  To enter your prior year unallowed passive losses, on a later "Describe the Partnership" screen (see below), select the "I have passive activity losses carried over from last year" line, and the following screens will have boxes for your disallowed loss carryovers from 2018.


In the year of disposition, all your losses, including your losses disallowed in previous years, should be deducted on your 2019 tax return, subject to any basis limitation.


Here's a screenshot of that "Describe the Partnership" screen:



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Level 11

Deducting 1231 loss from income

I don't know why the other two responses are talking about Passive Losses when your question is about a 1231 loss, but have you looked at the actual tax forms to see if it is showing up?  Form 4797 and Line 4 of Schedule 1.

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