topic K-1 change from non-passive to passive in Business & farm

K-1 change from non-passive to passive

kb12341 — Wed, 10 Mar 2021 02:44:14 GMT

I used to work full time for a startup formed as an LLC. Each year I received a K-1 and reported it as non-passive income. I have since moved on and am no longer actively involved with the LLC. Do I now switch over to reporting it as passive income? Do I wait 5 years (one of the tests asks about being actively involved for 5 out of the last 10 years)?

Second question. If I have carried over non-passive loses from previous years can they still be applied?

Re: K-1 change from non-passive to passive

M-MTax — Wed, 10 Mar 2021 03:35:31 GMT

It's passive if you don't materially participate for any year.

Re: K-1 change from non-passive to passive

kb12341 — Wed, 10 Mar 2021 14:16:13 GMT

So there is no issue with changing between passive and non-passive from year to year (and it is the correct thing to do) if involvement with the business changes as well?

Re: K-1 change from non-passive to passive

M-MTax — Wed, 10 Mar 2021 20:04:00 GMT

Yeah, it can change....one year you may materially participate and the next year you may not.