All [Event] Ask the Experts: Finish & File posts

Re: Form 2441, Part III, Line 18

AmyC — Thu, 09 Apr 2026 22:57:48 GMT

If you didn't earn enough to support the exclusion the $5,000 can become taxable wages which counts toward your income for the calculations.

As member-manager you are an active participant for SE tax but may participate at a passive level.

Material Participation (The "Passive Loss" Rules): This determines if you can use losses to offset other income. If you spend less than 500 hours (or meet other specific tests) on the business, you are passive.
Self-Employment Tax Rules: This is what dictates Box 14. If you are a Member-Manager, the IRS generally presumes you are a general partner for tax purposes. This means your share of the LLC's ordinary income is subject to Self-Employment tax, regardless of how many hours you worked.

To change things is not easy.

If you are listed as a Member-Manager in the LLC’s operating agreement, you are legally viewed as having the authority to bind the entity. To move that income from "Nonpassive" to "Passive" (and remove it from Box 14):

You would likely need to update the LLC's legal structure or your specific role to "Member" (excluding the "Manager" title).

Note: If you are reporting a loss, the IRS usually doesn't complain if you call it "passive," because passive losses are restricted and can't be used as easily. However, if you are trying to claim a credit (like the EIC) based on that income, they will look very closely at whether you actually earned it through "material participation."

Re: Form 2441, Part III, Line 18

dnschang — Thu, 09 Apr 2026 21:42:09 GMT

I think that's it.

Checking my records, for all the K-1s I have received, the income has always been listed under nonpassive income and the amount appears in both box 1 and 14. Almost all of them are at a small loss so self employment taxes didn't come into play. My earned income only decreased to this small amount for the past two years as I was paid on a fellowship, so it didn't matter before.

In this case, the software still thinks I qualify for the credit as initially calculated because now the $5,000 dependent care benefit is all taxable income and feeds into the earned income calculation. Is the software correct in doing so? Or as you said, my earned income should never include the $5,000 whether or not it's taxable?

On a separate note, is active/passive member designation based on actual participation and can be changed easily? I ask because I am technically a member-manager of the llc but have very limited participation.

Thank you so much again for walking me through this.

Re: Form 2441, Part III, Line 18

RobertB4444 — Thu, 09 Apr 2026 13:57:08 GMT

Is the -$4919 amount reported on your 1065 K-1 in box 14 as well as box 1? Because that would mean that the income is considered self-employment income and the partnership has listed you as an active participant in earning that income. In which case your actual earned income for the year is -$3101 and you would not qualify for the child and dependent care credit.

If you are not an active participant in that partnership you should request a corrected 1065 K-1 that lists you as a passive individual instead and would keep you from having to pay self-employment tax on earnings from the partnership.

Re: Issue selecting depreciation method

dpslater — Thu, 09 Apr 2026 11:30:13 GMT

Thank you!!!

Re: Final PTP K-1 in TurboTax: 1099-B, Section 1256, Box 20/199A, and disposition questions

TINAAAAA — Thu, 09 Apr 2026 05:43:20 GMT

@RobertB4444 Thank you again — I really appreciate your help.

I have one more question about the “Other deductions” field in the 199A section. My K-1 Box 13 shows code H = 247 on the main K-1, and the supplemental information also shows 13AE = 4, but TurboTax only gives me one box for “Other deductions.”

Which amount should go in that box, if any? I just want to be careful not to enter the wrong Box 13 amount or double count anything.

Thank you!

Re: Form 2441, Part III, Line 18

dnschang — Thu, 09 Apr 2026 01:44:31 GMT

I don't know what to say but this actually worked. Attributing the K-1 to my spouse fixed the numbers for me, but I think as you said, it is a superficial fix because the loss is probably applied to my spouse's earned income instead, which is way over the dependent care benefit so the issue is masked.

The software has some real bugs with this. Ironically, when I attribute the K-1 to both of us, I received max credit of $3000 x 2 = $600, which makes absolutely no sense.

See the turbotax AI/automated explanation below for each option I select:

Me (correct designation, incorrect result):

"With one qualifying person, the maximum expenses you can use is $3,000. You received $5,000 in Dependent Care Benefits from your employer, which reduces your eligible expenses to $0, but the IRS allows you to use the lesser of your earned income or $3,000 for the credit calculation. Since your earned income is $1,899, only that amount counts. Your credit rate is 20%, so your final credit is $380."

Spouse (incorrect designation, correct result):

"With one qualifying child, the maximum expenses you can use for the credit is $3,000. Because you received $5,000 in pre-tax Dependent Care Benefits from your employer, your eligible expenses are reduced to $1,182. Your credit rate is 20%, so your credit is $236 ($1,182 × 20%)."

Both of us (incorrect designation, incorrect result):

"With one qualifying child, the maximum expenses you can use for the credit is $3,000. You received $5,000 in Dependent Care Benefits from your employer, so your eligible expenses are reduced to $3,000. Your credit rate is 20%, so your credit is $600."

Any advice on how to proceed? Is this something you can report higher up?

Thank you so much.

Re: Form 2441, Part III, Line 18

JamesG1 — Thu, 09 Apr 2026 00:26:58 GMT

Similar to @RogerD1 above, I compute a $200 credit for child and dependent care expenses in TurboTax Desktop Premier. I included a 1065 K-1 and W-2 wage numbers similar to @RogerD1 above.

In my example, the 1065 K-1 loss does not affect line 18 earned income but that may be because the loss was credited to the other spouse. The reason may be because of how the 1065 K-1 was entered on this end versus how the 1065 K-1 was entered at your end.

@dnschang

Re: Form 3250 Overseas cash gift from the sale of real property

AmyC — Wed, 08 Apr 2026 23:43:17 GMT

Form 3520 must be paper filed separate from your return. Mail to: IRS Service Center in Ogden, UT 84409. I suggest you send it certified and do not require a signature.

Here is a comparison of the FATCA (Form 8938) and FBAR requirements. I imagine you need to file both but best to check.

Re: Sell property use as rental property and primary property

DianeW777 — Wed, 08 Apr 2026 23:32:20 GMT

It's possible to have a main home and a secondary home. The main home is eligible for the sale of home exclusion. A secondary home is a sale of an investment property and is not eligible for the exclusion.

The next question, to be clear, you rented the second home for six or seven months in 2025. If so, that rental income is taxable and you would be entitled to expenses for the period of time it was rented. If it was fully rented during that time, meaning you never used it for personal purposes during the last six months, you should list it as a rental asset and enter your rental activity on Schedule E for 2025 (June-December). TurboTax will ask you when you placed the property in service which is the date it became available for rent.

In your scenarios based on having a main home the rental home is not your main home so number 1 does not apply.
This applies when it is sold. The depreciation will be recaptured to the extent of gain and there is no exclusion available.
This is a possibility however, the exclusion will be prorated based on days owned and rented. More details about this below.

Home Sale with Rental:

In your situation the sale should be reported as a sale of your home. This means that in the rental activity you must be sure to select in Property Info it was sold and when prompted select Special Handling (this stops TurboTax from looking for sale information in the rental).

When you enter the home sale in TurboTax it will ask for a couple of items that are needed to report the sale correctly.

The total depreciation expense that was allowed during the period it was available for rent.
The number of days the property was available for rent during the ownership period.

Results:

The amount of depreciation that was allowed will be completely taxable up to the amount of gain received on the sale.
The remaining gain if any, will be split between taxable and amount eligible for exclusion by using the following formula.
- The total days available for rent will be divided by the total days owned to determine the portion of the remaining amount of gain that is taxable for the rental period
- The balance will be eligible for the home sale exclusion
TurboTax will do all the calculations based on your entry

Steps to enter the Sale of Home in TurboTax: Wages and Income > Less Common Income > Sale of Home

On the screen Primary use of home select 'Yes'
Enter the number of days used as a rental (nonqualified use)
Continue to Depreciation after May 6, 1997 > Enter the total depreciation for rental period in both boxes

This will allow TurboTax to handle the sale with the correct amount of taxable gain and excluded home sale gain.

You can decide your actions based on the information provided.

Form 3250 Overseas cash gift from the sale of real property

ykant7 — Wed, 08 Apr 2026 23:25:25 GMT

If you receive as an example 300K gift/bequest, via wire transfer, from the sale of real property overseas, would Form 3520 be adequate alone. Must it be filed via paper?

Thank you!

Re: Form 2441, Part III, Line 18

dnschang — Wed, 08 Apr 2026 23:52:07 GMT

I figured out half the issue. It is related to my 1065 K-1 which has a loss of $4,919 reported on schedule E. If I remove the 1065 K-1, the dependent care credit Form 2441 calculates my earned income correctly as $1,818, which is my W-2 income, shown on Form 2441, Part III, Line 18. However, if I add my 1065 K-1, the program somehow calculates my earned income as $1,818 + $5,000 - $4,919 = $1,899 (Form 2441, Part II, Line 4), and for some reason Form 2441, Part III, Line 18 would show $0.

Any solutions to this?

Re: I need to file a section 481(a) adjustment through form 3115 to account for prior years of no...

DianeW777 — Wed, 08 Apr 2026 23:20:04 GMT

Yes, you would not use a minus sign to create an opposite affect. Simply enter the number in the expense slot with the description as Section 481 Adjustment.

You're welcome.

@ykant7

Sell property use as rental property and primary property

pinzhu — Wed, 08 Apr 2026 23:19:04 GMT

I bought a house in 2018, I have another house so I live half time in this house, but I never report this house as primary or secondary house in Turbotax. I list another house as my address in Turbotax, I assume that treat the other house as my primary property?

I rent the house in 2025.6 - 2025.12, and haven't decided if in future I should continue rent it out, convert it as primary property or live half time in this house like what I did in 2018-2025.6. f I plan to sell the house later, how should I report the sell?

I see three possibilities:

1. My 2018-2025.6 residence count as primary property. If I continue to rent house and sell house by 2028.6, it means I live 2 years and get $250,000 exemption except the depreciation recapture.

2. This house count as secondary property in 2018-2025.6. If I sell the house immediately, this will treat as rental property with no $250,000 exemption at all. Because secondary property has no tax benefit.

3. This house count as secondary property in 2018-2025.6. If I move back in as primary property for 2 years. Do I get $250,000 exemption with depreciation recapture, or I need to do $250,000 * days use as primary property/total days own the house to get exemption amount.

Should my 2018 - 2025.6 resident make this house as secondary property with no tax benefit?

Re: I need to file a section 481(a) adjustment through form 3115 to account for prior years of no...

ykant7 — Wed, 08 Apr 2026 23:15:51 GMT

Thank you so much! So to be clear, (it's been a long day!) the amount entered into schedule E as Other or Miscellaneous (Tied to the Section 481 Adjustment) is a positive amount. Thanks again for all of your time and information.🙏

Re: Split Mortgage Interest Deduction between head of household and single filer

user17581270646 — Wed, 08 Apr 2026 23:12:40 GMT

Thanks @Bsch4477 .

From what you are telling me, Yes, we can split itemize the mortgage interest and property tax. Thank you.

Re: Split Mortgage Interest Deduction between head of household and single filer

user17581270646 — Wed, 08 Apr 2026 23:08:42 GMT

Thank you much !! @DianeW777 .

Allow me to repeat if I understood.

Ideally, the person on the loan can itemized the mortgage interest.

But, something like my partner and I scenario (Both names at property deed), IRS allows split itemized deduction. Because we both put deposit into our joint bank account and paid the mortgage and property tax out of this account.

Thanks for the help and have a great day.

Re: I need to file a section 481(a) adjustment through form 3115 to account for prior years of no...

DianeW777 — Wed, 08 Apr 2026 23:03:51 GMT

The expense itself is a number that is subtracted from income, however you do not enter it as a negative number. It is listed as 'Other or Miscellaneous' expenses on Schedule E. Keep in mind the following information.

The rule is as follows - To file IRS Form 3115 for an automatic accounting method change, you must file in duplicate:

attach the original, unsigned form to your timely filed federal tax return (including extensions), and
mail a signed copy to the IRS National Office or Ogden, UT office.
- Form 3115 Instructions (page 2)

Next, for the prior depreciation you have not used.

You can use the following form to correct the depreciation for your rental property. Take any amount not previously expensed on prior returns, as an expense on the current year tax return as 'Other Expenses'.

Form 3115 Instruction: By including this with the current year tax return, you can complete everything on the 2024 tax return.

Adopt a change in accounting method: This option allows you to go back as far as you need. Keep in mind that even if you prepare the form 3115 in TurboTax, you will need to manually include the Section 481(a) adjustment to your return under miscellaneous expense for the prior year or missed amount.
- Why am I adopting a change in accounting method? Not claiming depreciation in two or more years indicates that you've chosen an accounting method without depreciation. In this case, you must now elect to change your accounting method to include depreciation.
You must use the TurboTax Desktop ‌ to complete this form. TurboTax doesn't help you with this form. And your return must be mailed because this form is not supported through e-file.

This must be completed and filed with the return on time.

The depreciation will not link from Form 3115 to your Schedule E. Be sure to get the total accumulated depreciation prior to 2025, and enter that number on your Schedule E under 'Any Miscellaneous Expenses' then use the description F3115 Section 481(a), then add the amount. Your depreciation schedule will maintain the information for each asset for future use.

You can change to TurboTax Desktop if you choose.

How to switch from TurboTax Online to TurboTax Desktop?

Additional options that you may consider:

While form 3115 is not supported in TT, you can include the adjustment amount in your tax return and still e-file your tax return.
You would then need to complete form 8453, check the form 3115 box and mail both of these forms to the address on the instructions. If you do this, make sure to send the envelope certified mail.
Not necessarily advocating this method, for the simple fact that the IRS staff is down about 25% and just not sure of all the logistics given the reduction in staffing.
If you decide to mail both the return with the form 3115, I also recommend you send this envelope certified mail as well.

@ykant7

Re: I need to file a section 481(a) adjustment through form 3115 to account for prior years of no...

ykant7 — Wed, 08 Apr 2026 22:59:24 GMT

Thank you again. What confuses me is that TurboTax calculates my depreciation for Tax year 2025 as a positive expense on Schedule E, but when trying to account for years lost of claiming depreciation, the amount on Line 19 for the Section 481 Adjustment is a negative amount (example -25,836) It totally counters my other expenses already entered like Management Fees, etc.

Re: I need to file a section 481(a) adjustment through form 3115 to account for prior years of no...

DawnC — Wed, 08 Apr 2026 22:39:42 GMT

It is generally a negative number that decreases income.

Re: I need to file a section 481(a) adjustment through form 3115 to account for prior years of no...

ykant7 — Wed, 08 Apr 2026 22:30:13 GMT

Thank you! On Part 4 of Form 3115, question 26: If I am trying to account for prior tax years of not claiming depreciation, would the number (catch up adjustment) on this line be a positive or negative number? Much appreciated!