liability (deferred credit ) in TurboTax for a partnership LLC rental property

[MaverickAl]

I would appreciate it if you could help me. I have a partnership LLC for a rental property. Last year, we filed our taxes using Form 1065, 8825, and K-1 for the partners. In 2024, we signed a lease contract, and based on our agreement, a portion of the monthly lease payments—approximately $1,600 per month—should be credited to the tenant at the end of the contract toward their purchase price.

I am trying to determine where and how to add this liability (deferred credit) in my desktop TurboTax. Any help would be appreciated.

[RobertB4444]

This is a balance sheet transaction.  This credit reduces the basis for the partners by the value of the credit.  If the partnership makes less that $250,000 a year then you won't enter this in TurboTax at all.  If the partnership makes more than that then you will enter it when entering your balance sheet transactions.

@MaverickAl 

[MaverickAl]

Not sure if we are on the same page or not, but tracking this credit is important at the end of the contract for sales and capital gains tax, as well as for the depreciation of the rental property.

[RobertB4444]

Of course tracking this credit is important.  But whether or not you enter it into TurboTax at all depends on how you treat it.

You could treat it as installment sale payments.  Set your asset up as an owner-financed sale.  That way you take the $1600 as monthly payments taxed as long term capital gains and the remainder of the monthly amount you would take in as regular income.  You would enter an owner financed sale into TurboTax as disposition of the asset in question.  That would let TurboTax track it for you.

However, if you just want to track it as a deferred credit then you would track it outside of TurboTax and only enter it into the balance sheet of your partnership return.  

The installment sale allows you to not only track it but make sure to pay as little tax as possible on the amounts received as you receive them.  The deferred credit route doesn't take the payments into income at all until the end of the contract.  Installment sale is the better way to go if you are confident that the lessor is going to finish out the contract.  Deferred credit is the better way to go if not.

@MaverickAl