Where to enter passive activity interest expense for K-1 partnership?

[ccbrown90]

I have two issues regarding my K-1 and TT.

1) We used a loan to acquire interest in a partnership. According to the IRS, since this is a passive activity, the interest expense should be included on Form 8582, but on TT (self-employed) online, I'm not able to use forms. Where should this be reported in the K-1 interview?

In my case, this K-1 reported rental real estate loss in Box 2 (and no activity in 1 or 3), so my interest expense should be reported on Schedule E. When I go to Schedule E on TT, I'm not able to add any expenses apart from my rental property (unrelated to K-1 partnership). When I go to the K-1 part of TT,  I don't see a place to enter an expense like this anywhere, either.

2) This is the 2nd year that this K-1 will be reported in TT. When I went through the interview, it didn't ask me any questions about my capital account or liability share, which are needed to show my adjusted basis. When I added a fake K-1 to see what differences there are in the program, it DID ask me to record these.  Are these numbers reported on my return anywhere? Should I just go along with my "original" k-1 report from TT (I'm scared if I delete it, I might screw up something with the importation?), or should I delete it and reenter it so that I'm prompted to enter in the liability share and capital account?

I've been pulling out my hair trying to figure this out, so I really appreciate if anyone can help me out on this. Thank you!!

[nexchap]

I can answer #2:  This is an oddity / bug in the interview.  Starting in the 2nd yr of a K-1, the first time you go through the interview, it doesn't ask about capital account / liability, just as you noted.  BUT, if you 'update' that K-1 to go through the interview a 2nd time, it will ask about those items.  Alternatively, you can simply go into 'Forms' mode, pull up the worksheet, and enter the information directly.  Either way, this information is only for your records.  It doesn't go in with your return.

[ccbrown90]

Weird! For me, it doesn’t matter how many times I go through the interview, it never asks. I also can’t access forms since I’m using online which is frustrating. I’m thinking of switching to desktop but I’m nervous about doing it this close to filing, since I’ve never used that version before. 

[nexchap]

Sorry.  I didn't notice the mention that you were using the online version.  I'm not sure how or if you can update capital account / liability stuff without the desktop version.

If you decide to switch, you can move all your online work directly into the desktop version.  This link details how:  https://ttlc.intuit.com/community/choosing-a-product/help/how-do-i-switch-from-turbotax-online-to-th...

[Rick19744 · Accepted solution]

Set up a separate K-1 in TT with the same EIN and use the same entity name but add "passive interest".

Walk through the questions and there should be a place that asks about interest expense.  Make sure you indicate that this is a passive activity. 

I recommend that you maintain your own separate tax basis schedule using excel or something similar.

See the attached from IRS Notice 88-37.

Interest expense allocated to a passive activity expenditure (within the meaning of 1.163-8T(b)(4)) of a passthrough entity should be entered on Form 8582 as a deduction from the activity in which such expenditure was made. The deductible amount (if any) of such interest expense, as determined under 1.469-1T(f)(2)(ii), should be reported in Part II of Schedule E. This interest expense should be identified on a separate line in column (a) as “passive interest,” followed by the name of the passthrough entity to which the interest expense relates, and the amount of such interest expense should be entered in column (f).