Interview question regarding Real Estate Professional

[Charles_P]

Hello,

I am filing a joint return and my spouse will qualify as a Real Estate Professional while I do not.  We receive real estate losses via a K-1 from our 50%-50% LLC.  Since at least one of us does qualify, we can deduct those passive activity losses.

When entering the K-1s, the TT interview asks about my status as a professional.  I guess my K-1 is the first to come up in the interview based on imported 2020 data.  Regardless of how I answer, the interview will never ask the questions for the 2nd K-1 for my wife.  The deductibility of our losses is then based solely on the answer I gave for the 1st K-1.

As stated in the TT interview instructions:

     Joint Returns:

     These requirements are not met if your spouse separately satisfies them.

Thus, I answer "No" to the qualification questions as they pertain to me.  The interview does not cover this ground for the 2nd K-1 for my wife.

Furthermore, once I answer negatively to the Real Estate Professional tests, the interview will NEVER as me again even when reviewing the K-1 for potential changes.  If I enter an affirmative answer, the interview will review if I chose to go back over this -- but NOT if I answered negatively the first time.

I believe the correct interview logic is that TT should ask the qualification tests for each K-1.  Furthermore, the interview should review answers to those questions when reviewing K-1.

[tagteam]

Are you entering the K-1s in that section of the program or in the Rentals section?

[Charles_P]

Hello,

I am entering the K-1s in the Income-->Business Items-->Schedules K-1, Q.

Regards,

Chuck

[MarilynG1 · Accepted solution]

If you are using TurboTax Online, you may want to consider downloading the Desktop version, where you can indicate directly on Schedule K-1 your Professional Real Estate Status.

Click this link for more info on How to Transfer from TurboTax Online to TurboTax Desktop.

Or, delete the K-1s that transferred from 2020 and enter the 2021 K-1s manually, with your wife's first. 

[Charles_P]

These suggestions do not seem to correct the behavior of TurboTax.

First, I tried to delete all K-1s.  Then re-enter my wife's K-1 first.  Still, the interview does not ask about real estate professional.

Next, I tried to edit her K-1 directly, indicating (1) material participation, (2) real estate professional, and (3) a trade/business.  Even with these check boxes set properly, the losses are still suspended for current year.

Your help and advice are appreciated.

Regards,

Chuck

[Charles_P]

PS.  I am using TurboTax Deluxe desktop.  I also did my 1065 using the TurboTax Business.

[tagteam]

Try the following when entering your K-1:

[GeorgeM777]

@Charles_P...We attempted to recreate the issue you are confronting.  In our test return, the rental property loss would not carryover (similar to your situation) despite the fact that we had designated ourselves as Real Estate Professionals, with not only materially participation but also active participation.  In other words, we checked the boxes indicating more than 50% of our time was spent in real estate activities, and further that such time was more than 750 hours for the year.

However, upon reviewing the page wherein we entered information about our test property, we noticed that there was a page in which we did not designate that our participation was material.  Below is the page.  You will see that we clicked the radial button for material participation.  Upon doing so, our rental loss carried over to Schedule I line 5, and Form 1040 line 8.  

[tagteam]

@GeorgeM777 

I believe @Charles_P is entering information from a K-1 (i.e., he is in the K-1 section of the program and not the Rentals section).

[crashnscar]

Did you get this resolved? I am having the exact same issue. I said no to REP question for myself, but was anticipating it asking again for when I entered in my wife's K-1. It did not and now it doesn't seem these losses (depreciation) are being included.

[crashnscar]

Ended up figuring this out myself. Go to business section, rental real estate, and answer Real Estate Professional questions there. It asks if you or spouse qualify and will then take into account your K-1 real estate rental losses.