Basis limitation for K-1

[superduper1967]

I entered the income, loss, expenses from K-1 into TurboTax Premier in the K-1 dialogue, and it is adding the loss and expense for deduction into Schedule D and Form 4952 respectively. However my basis is 0, so I should not deduct these, and should be carried forward. Any idea how can I make TurboTax do this? Should I put loss and expense as 0, then how do I make TurboTax to carry forward these losses? I was hoping there will be some basis limitation worksheet and TurboTax will automatically disallow the loss/expense and carry forward them. 

Can someone please help me how to handle this with TurboTax Premier.

Thanks.

[ThomasM125]

After you enter your K-1 information in TurboTax, you will see a screen that says Describe the Partnership. One of the options will be All of my investment in this activity is at risk. If you do not check that box, later TurboTax will ask you questions to determine you basis in the venture and if it is less than the current year loss, all or none of the loss will be deducted in the current year. The amount at risk will be reported on Form 6198 At-Risk Limitations where it will be used to apply your loss to the current year as allowed and the balance carried over to the next year.

[superduper1967]

Thanks for the reply.

I used the at-risk option as per your suggestion. I could enter my basis and it calculated how much deduction I can take this year, and excess amount got carried over.

[DaveF1006]

No. You didn't miss anything; the software is functioning as intended. Form 6198 doesn't just look at the net result of the K-1; it follows a specific sequence:

1. Step 1: Increase Basis: Your starting basis is increased by the income items reported on the K-1 (Line A in your example).
2. Step 2: Apply Losses: You are allowed to deduct losses only to the extent of that new, increased basis.
3. Step 3: The Cap: Since your losses (Line B) exceeded your income (Line A), the "At-Risk" rules limit your deduction to exactly the amount of income you had.

This results in a net zero impact on your taxable income for this specific activity, and the excess ($B - A$) becomes a suspended loss carried forward to future years.

Your observation about the pro-rata spread is technically correct under tax theory, but the reason you see it being "ignored" is likely due to the Tax Cuts and Jobs Act (TCJA).

The "Pro-Rata" Rule

Usually, if you have multiple types of losses (e.g., Section 179 expenses, ordinary losses, and interest), and you are limited by at-risk rules, the allowed deduction is spread proportionally across all of them.

Why it's likely being excluded:

1. The 2% Floor Repeal: From 2018 through 2025, "Miscellaneous Itemized Deductions" (which included Portfolio Deductions/Investment Expenses from K-1s) are not deductible at the individual level.

Most tax software is programmed to prioritize "allowable" deductions. Since the Portfolio Deduction ($0$ benefit on your Schedule A) cannot be taken anyway, the software often excludes it from the Form 6198 calculation to ensure your at-risk basis is used up by losses that could actually provide a tax benefit (like Ordinary Loss or Interest)