1231 Losses

Forum|Forum|1 year ago
July 31, 2024
1 reply
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For Tax Year 2023, I am a limited partner in Partnership A whose only asset is a limited partnership interest in Partnership B. Partnership B has/had only two activities...a vacant lot and a large commercial development project. Partnership B could no longer fund the cash needs of the development project and sold it to the project lender at a loss in 2023. The purchase price was the outstanding loan balance. My K-1 for 2023 from Partnership A includes a 1231 loss on line 10 of 120,000. My tax advisor assures me that the 1231 loss can be recognized in 2023 and is not a passive loss because the activity was disposed of by Partnership B. Turbotax Premier has no provision to recognize this loss currently and carries it over to future periods.

An instruction box for Form 8582 (Passice Activity Loss Limitations) indicates: "Schedule E Rental Real Estate Property without Active Participation:
If the Schedule E has all of the following conditions: (1) The Property Type is other than "6 Royalties" (2) The "Active Participation" box is not checked (3) The "Other Passive Exceptions" box is not checked and (4) If there is a current year gain and the Property Type is not "5 Land" or "7 Self-Rental".

I can not find the "Other Passive Exceptions " box. Does it exist and if so where? Will this allow me to recognize my 1231 loss in the 2023 tax year? If not, is there another way to enter this transaction on TurboTax and recognoze the loss in 2023? (I have seen other threads that indicate that TurboTax can not handle the transaction properly. Find it hard to believe because lesser tax software such as TaxSlayer handles this simply beacause the asset was sold.)

Mike9241

Level 15

use a second k-1 for the 1231 loss and any other lines on the k-1 that relate to this activity. indicate complete disposition. This would not be proper if an aggregation election was in effect.

ElMendoAuthor

Level 2

I triesd your suggestion. I disposed of the entire partnership covered by the k-1. It did not work. No 4797 was generated and the 1231 loss was not recognized currenty, but carried forward. I then reversed the disposal and checked the boxes to be a real estate professional and the results were correct.....1231 loss was recognized currently as ordinary loss. Overrode the Schedule E entry re: real estate professionals. It would require that I paper file but that does matter to me. Does this make sense?

JotikaT2

Employee Tax Expert

Paper filing gets your returned filed, but it just takes longer to process than an electronically filed return. As long as you file your return by the extended due date, there should not be an issue. Please see this link for guidance on printing your return for filing.

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