I invested in several real estate partnerships (starting in 2022) and have received multiple K-1's. However, none of these K-1s have reported any income, nor will I take an "active loss" from any of them. Additionally, in practice, I have received no distributions from them of any kind.
1) Do I need to include these K-1s when I file?
2) If 1 is no, then is there any reason to include them?
(E.g., Need to report capital account information / business losses so that if a taxable event occurs then TurboTax will have the information to carryover the proper deductions.)
Essentially, can I ignore these from a tax perspective until I receive any income/gain from them? I imagine the K-1 from that period would automatically carry forward losses / capital accounts to offset the income reported in that year.
Thank you!
If you have a loss from real estate, you still need to enter it even if you are not currently allowed the loss. It will be a Passive Loss Carryover that shows up on Form 8582.
If you don't enter it, you won't be carrying forward the Passive Loss.
Got it. Thanks for your response. I have a couple of follow-up questions.
1) So, to carry forward a passive loss, I need to include the K-1 in my filings over the years?
It seems per TurboTax that I have to just manually input the passive activity losses from last year. Given this, is there any benefit for including the K-1 in the first year since you will include the relevant information from carrying forward the passive loss in the next year?
2) Additionally, if the K-1 doesn't show any income or loss then is there any benefit trying to include it when I file or can I skip those?
For context, I don't expect to receive any distributions/gain/income from these until complete disposal (~10 years out). I'm trying to avoid having to needlessly complicate my taxes to carry forward passive losses if I can just do this when a taxable event occurs.
Thank you!
1) Yes, you need to include the passive loss each year.
2) It seems extremely unlikely there will be no income or loss for a year. But in the unlikely event that happens (all numbered boxed on the K-1 or blank/zero), you don't need to enter the K-1 in the software.
if you don't report the passive losses each year, then down the road when you sell in 10 years, you may not be able to claim passive losses you incurred in closed years. also, in the future, you may have passive income, then unless you want to pay taxes on the, you would need to report prior passive losses. just entering them for that year, could substantially increase you audit risk. aif the pAL is from rental real estate, if in some year your AGI is below $150,000 some of those passive losses would be allowed. Finally, what future tax laws will hold is unknown, so I would advise proper reporting of the k-1 results each year.