K-1 Loss Rental Property

[Diane in MT]

My husband (joint filing) has an LLC with siblings, running a family real estate rental where he got a k-1 showing a small loss in 2021 and 2022.  He is at-risk, actively participates, has substantial basis and we make under $100k. I must have answered the TT questions wrong last year because it didn't show the loss on schedule E in 2021 but as an unallowed loss on form 8582 part Vll.

I need to amend last year's return, however I'm almost done with 2022's return and it also is not recognizing the loss on schedule E even though I believe I've answered all the questions correctly.  I've done a ton of research and tried everything I can think of.  He is not a real estate professional. Is it recognizing the LLC itself (by EIN#)  as a passive loss activity and therefore not giving me the special $25,000 allowance for passive losses?  I've deleted the K-1 and re-entered to no avail.

[Anonymous_]

I have a test copy of TurboTax and have created a test return with a K-1 from an LLC and a rental real estate loss with total income below the threshold for the $25,000 special allowance. That allowance appears on Line 5 of Schedule 1 in my test return.

If you are seeing a different result, it could be that the loss appears in a different line on your K-1. 

On which line on your K-1 does your loss appear? 

[Diane in MT]

There is no loss showing on the 1040.  It just shows on the 8852 as an unallowed loss. 

[Anonymous_]

On which line on your K-1 does the loss appear? If it appears on Line 1, that is a problem.

It most likely should appear on Line 2 (see screenshot).

[Diane in MT]

The loss appears on line 3.

[Anonymous_]

Read the guidance for Box 3.

[Diane in MT]

Thank you for this.  It is a passive loss, but shouldn't TT take into account the special $25K allowance and allow the loss against non-passive incomer? My hubby  actively participates and we make less than $100k.  

[DianeW777]

If the amount was listed in box 2 it would be a net rental real estate activity, which is what the passive loss rules apply to that you mention. This rule does not apply to box 3, which is 'Other Rental Income (Loss).

This loss can only be used against other passive income.  If you believe the entry is in the wrong box you can request a corrected K1.

[Anonymous_]

---

@Diane in MT wrote:

Thank you for this.  It is a passive loss, but shouldn't TT take into account the special $25K allowance and allow the loss against non-passive incomer? 

---

Not for a figure that appears on Line 3 of your K-1.

[Diane in MT]

Well that makes sense now.  Can we use this carryover passive loss against sales proceeds is 2023?  The entire property is being sold later this year.

[Anonymous_]

Yes, you can use suspended passive losses to offset gain from a sale to an unrelated third party in a fully taxable transaction.

[Diane in MT]

Just to confirm: The passive loss is showing in Part VII column C "unallowed loss" of form 8582 .  This will be an "allowed" offset to taxable sale in 2023?

[Anonymous_]

---

@Diane in MT wrote:

This will be an "allowed" offset to taxable sale in 2023?

---

Yes, that is correct.