K-1 Guarantee Payments

[pbmeye02]

My partnership K-1 shows a roughly $10,000 LOSS in box 2 and an almost identical guaranteed payment for capital in box 4b.  I thought the two would offset when it came to my tax obligation, but TT added about $3,000 to my taxes due when I entered the K-1 data. What's up? (Yes, I have other businesses that showed operating losses, including other real estate I manage myself -- is that the issue?)

[tagteam · Accepted solution]

The amount in Box 2 is considered a passive activity loss while the amount in Box 4b is considered nonpassive income. 

Passive losses, with certain exceptions, are generally only offset by passive income with excess losses being suspended.

[pbmeye02]

many thanks for a quick response ... but we actively manage the K-1. I am a managing partner, though I am not a real estate professional. Does my non-professional status cause the loss to be passive?

[tagteam]

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@pbmeye02 wrote:

.......we actively manage the K-1. I am a managing partner, though I am not a real estate professional. Does my non-professional status cause the loss to be passive?

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You need to materially participate in the rental activity as a real estate professional in order to avoid losses from the activity to be considered passive.