Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
patyan2001
Level 2

Does loss in Schedule k-1 form 1065 from LLC deductible in Federal tax return?

In my 2021 schedule k-1 form 1065 from LLC, there were management fees and other miscellaneous spending (no gain). My accountant told me that previously these expense with the amount that is above 2% of the adjusted growth income can be deducted, but it is no longer deductible in Federal tax return per new tax law. Is my tax accountant correct?

2 Best answer

Accepted Solutions
tagteam
Level 15

Does loss in Schedule k-1 form 1065 from LLC deductible in Federal tax return?

Were the fees and miscellaneous expenses incurred for a rental property?

 

Your accountant is correct with regard to the 2% floor but that does not apply to property held for business use (such as rental real estate).

 

You should contact your accountant to confirm what you were told.

View solution in original post

tagteam
Level 15

Does loss in Schedule k-1 form 1065 from LLC deductible in Federal tax return?

It is even worse than your hypothetical if the fund actually loses money. If the price of the fund decreases, your account value also decreases but you still have to pay the 2% fee on that lower value, leaving you with even less.

View solution in original post

6 Replies
tagteam
Level 15

Does loss in Schedule k-1 form 1065 from LLC deductible in Federal tax return?

Were the fees and miscellaneous expenses incurred for a rental property?

 

Your accountant is correct with regard to the 2% floor but that does not apply to property held for business use (such as rental real estate).

 

You should contact your accountant to confirm what you were told.

patyan2001
Level 2

Does loss in Schedule k-1 form 1065 from LLC deductible in Federal tax return?

Thanks for your reply. My schedule k-1 is not real estate related. It is an investment fund which hold pre IPO company stock. It charges fees for managing the fund each year, but no capital gain (loss) until the company goes to IPO or being sold. Are this type expense occurred each year deductible at all? In schedule k-1, the letter under "descriptive information" is "W". 

tagteam
Level 15

Does loss in Schedule k-1 form 1065 from LLC deductible in Federal tax return?

Speak with your accountant to confirm but, generally, investment-related expenses are no longer deductible (as miscellaneous expenses) after tax reform (the TCJA).

patyan2001
Level 2

Does loss in Schedule k-1 form 1065 from LLC deductible in Federal tax return?

Thanks again for your reply. My accountant have already told me that this type of expense is no longer deductible. I somehow thought it does not make sense. The fund charges 2% each year, if after two years I realized 5% gain, I actually lose money, because 5% gain - 4% management fee = 1%. I actually gained 1% (less expense), yet, I have to pay tax on 5% gain, not 1% since the expense are not deductible. So after tax, I could end up lose money with such investment in this example. 

tagteam
Level 15

Does loss in Schedule k-1 form 1065 from LLC deductible in Federal tax return?

It is even worse than your hypothetical if the fund actually loses money. If the price of the fund decreases, your account value also decreases but you still have to pay the 2% fee on that lower value, leaving you with even less.

patyan2001
Level 2

Does loss in Schedule k-1 form 1065 from LLC deductible in Federal tax return?

You are absolutely right. When I invest, I had simply mind that any cost or loss can be deducted. Since the fund investment started in 2021, I have just learned such new tax rule when recently filing the 2021 tax return. 

Dynamic AdsDynamic Ads
Privacy Settings
v