topic K1 not posting to Schedule E correctly, ie not allowing non-passive loss in Get your taxes done using TurboTax

K1 not posting to Schedule E correctly, ie not allowing non-passive loss

joannabanana6 — Thu, 12 Feb 2026 04:51:54 GMT

Apologies ahead of time for the long post, but I am so frustrated!

I have used TT Premier and TT Business for years and never had this issue before, so I'm wondering/hoping this is just a glitch in the software (that can be fixed).

We have an LLC for our rental properties. I've entered everything exactly the same every year for the K1's (except for the amounts of course). We are general partners and materially participate and qualify as real estate professionals. Here's the problem:

Every time that we've had a loss, the amount from our K1's posts to Schedule E, under "Loss K1" in the "Nonpassive Income & Loss" section and then to Schedule 1, Line 5.

THIS year, it is posting the amount of the loss as zero under "Loss allowed K1" under "Passive Income & loss", and I cannot figure out why!!!!!

The ONLY difference I can think of is that this year--unlike prior years--when entering the K1's in our personal return, it does not ask the question "Is this a trade or business" (although I do see that question on the printed form itself). So I'm wondering if this is the reason why this is happening??

I dearly hope someone can help me--thanks! 🙂

Re: K1 not posting to Schedule E correctly, ie not allowing non-passive loss

ThomasM125 — Fri, 13 Feb 2026 15:37:51 GMT

That will happen if you indicate that you do not materially participate in the activity. You will see that questions on the screen that says Do You Actively Participate? to which you have to answer "yes" if that is true. You will see that question when you edit your Schedule K-1 entry. You may have answered the question wrong by mistake.

Re: K1 not posting to Schedule E correctly, ie not allowing non-passive loss

joannabanana6 — Sat, 14 Feb 2026 04:08:37 GMT

Thank you for taking the time to reply! 😊 However, I DID put that we actively participate, so it can't be that... 🤔

Re: K1 not posting to Schedule E correctly, ie not allowing non-passive loss

RobertB4444 — Tue, 17 Feb 2026 23:16:23 GMT

This is weird because I can't get the system to duplicate the problem that you're having. I'm going to recommend that you completely delete the K-1 information from the prior year and re-enter the K-1 into the system as if it were a new K-1.

Re: K1 not posting to Schedule E correctly, ie not allowing non-passive loss

Kas1244 — Wed, 18 Feb 2026 19:56:23 GMT

This is clearly a bug in TurboTax which no TurboTax employee will acknowledge.

If you have a loss on Box 2 (real estate losses), TurboTax 2025 automatically assumes it's passive. However, in many cases, Box 2 losses CAN be non-passive - for example, with short-term rentals (where you materially participate). The other big one is REPS status. There's no way to get around this.

I think you can override this behavior by pretending that the loss was on Box 1 - because after all, at least on the federal return the Schedule K-1 is not electronically sent as part of the personal return. But really, it's a bug in TurboTax - incorrectly typing in the K1 is obviously not a proper solution.

Re: K1 not posting to Schedule E correctly, ie not allowing non-passive loss

PatriciaV — Wed, 25 Feb 2026 23:59:53 GMT

You can fix this using Forms Mode if you're using TurboTax Desktop.

Open your return and click the Forms icon in the TurboTax header.
In the list of Forms in My Return on the left, scroll down and look for Info Wks near the top.
Click the form name to open it in the large window.
Scroll down to Part VI - Real Estate Professionals and check the "Yes" box.
Now find K-1 Partner for the related activity.
Confirm that the first box under Line 2 is checked: "Materially Participated."
Find Schedule E, pg 2, and confirm that the loss is shown under Part II Line 28 (i) Nonpassive Income and Loss.
Click Step-by-Step in the header to return to the main screens.

@joannabanana6

@Kas1244

Re: K1 not posting to Schedule E correctly, ie not allowing non-passive loss

joannabanana6 — Fri, 27 Feb 2026 01:46:14 GMT

Thank you so so much!!!! This took care of it, thank God! Appreciate the help - THANKS again! 😀

Re: K1 not posting to Schedule E correctly, ie not allowing non-passive loss

Kas1244 — Fri, 13 Mar 2026 15:01:25 GMT

How do you fix this if you are NOT a real estate professional, but rather you're claiming active loss because you run an STR (<7 days average rental period and material participation; but still not providing hotel like services so it wouldn't go on a Schedule C).

I guess you could trick the software by just saying you're a Real Estate Professional (similarly, you could trick the software into saying the loss appeared on Box 1), but both seem unsafe. For example, even though the federal Schedule E would end up looking the same, this might make a difference on some state forms.

It would be far better for TurboTax to just fix the bug.

Re: K1 not posting to Schedule E correctly, ie not allowing non-passive loss

DianeW777 — Mon, 23 Mar 2026 21:51:01 GMT

It depends based on your situation. The income is reported on Schedule E since you are not a real estate professional and you do not provide substantial services (example, cleaning/maid service). The exception to take advantage of losses and report on Schedule C is owners must materially participate, such as working over 100 hours and more than anyone else, or over 500 hours total on the rental activity.

If you qualify, you would report this on Schedule C and be prepared to pay self employment tax on any net profit.
It's not advisable to flip flop from year to year once a decision is made, although it's possible a permanent change could occur if your practices change.

If not, then this is considered as 'passive income' and will follow the passive activity loss (PAL) rules. Active participation is a requirement to be allowed to reduce other income by the loss on your rental property. There is also an income limit that begins to reduce that amount.

Phaseout Rule: The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that’s more than $100,000 ($50,000 if you’re married filing separately). If your modified adjusted gross income is $150,000 or more ($75,000 or more if you’re married filing separately), you generally can’t use the special allowance. This is because the special allowance is reduced to $0 since the modified adjusted gross income is over the $100,000 amount.

@Kas1244

Re: K1 not posting to Schedule E correctly, ie not allowing non-passive loss

Kas1244 — Mon, 23 Mar 2026 22:17:29 GMT

The income cannot go on schedule C since it's from a partnership. (Read the title of this discussion).

K-1 income ALWAYS flows through on Schedule E.

Because the income is from a real estate activity (a short term rental), it is reported on Box 2 of K-1.

However, since a short term rental is NOT a rental activity (<7 day rule 1.469-1T(e)(3)(ii)(A) ), then if the partner materially participated, it's an active loss, not a passive one.

This is really a very simple situation, which TurboTax cannot handle. The options are: (1) pretend the loss came on Box 1. This is bad; it creates small QBI deductions etc (which a Box 2 loss should not). Or (2) pretend like you're a real estate professional.

I'm not sure where a long winded answer about Schedule C came from.

Re: K1 not posting to Schedule E correctly, ie not allowing non-passive loss

AmeliesUncle — Mon, 23 Mar 2026 22:42:21 GMT

@Kas1244 wrote:

This is really a very simple situation, which TurboTax cannot handle. The options are: (1) pretend the loss came on Box 1. This is bad; it creates small QBI deductions etc (which a Box 2 loss should not). Or (2) pretend like you're a real estate professional.

You are correct that TurboTax is not set up for that.

Enter it in Box 1. If it is not a QBI activity (some rentals can be though), just indicate it is NOT a QBI activity, then it won't directly affect QBI.

Re: K1 not posting to Schedule E correctly, ie not allowing non-passive loss

AmeliesUncle — Mon, 23 Mar 2026 22:48:15 GMT

@DianeW777 wrote:
The exception to take advantage of losses and report on Schedule C i

Absolutely not. Even if it was individually owned, if service are not provided, it goes on Schedule E . Don't wrongly put on Schedule C just because the program is not set up for it (other than manually doing in Forms Mode, but that still can't be done in this situation with a K-1).

Re: K1 not posting to Schedule E correctly, ie not allowing non-passive loss

Kas1244 — Wed, 25 Mar 2026 04:07:51 GMT

Thank you, @AmeliesUncle .

I'll put it in Box 1.

Is there any way to request that this be fixed in future versions of TurboTax.Owning STR's is becoming quite a common situation.

Re: K1 not posting to Schedule E correctly, ie not allowing non-passive loss

AmeliesUncle — Wed, 25 Mar 2026 17:28:42 GMT

@Kas1244 wrote:

Is there any way to request that this be fixed in future versions of TurboTax.

Not really. They pretty much ignore any suggestions. I suspect the only way they consider it is if a person unknowingly let the program file their tax return incorrectly, then they later had to submit a complaint and get a refund (plus any penalties/interest that may apply) because the program did it wrong.