I created a test copy of my tax return, kept my original K-1 but stripped it down to income and interest expense. I added a new K-1 that contains the same amounts. The new K-1 correctly leaves the income at 20,000, but the old K-1 still incorrectly increases income to 22,000. First I list below what I included on the forms, then I list the results. I remain baffled as to why the income in the original form still increases to 22,000. I have played with some other numbers, such as removing the SSTB designation and removing QBI from the original K-1 and adding those values to the new K-1, but that did not correct or reproduce the issue.
In my original Form 1065 (K-1 Partner)
- All investment is at risk
- I first left line 1 as 15,000 business income and line 4b as 5,000 Guaranteed payments for capital.
- To try something new I consolidated line 1 into 20,000 by making line 1 as 15,000 business income and line 4b as 5,000 Guaranteed payments for capital.
- I removed all other amounts except for that 20,000 from Ordinary business income (loss) and checked materially participated
- On the K-1 Partner Additional Info form, I included the 2,000 in Outside Expenses, Interest Paid (line 2)
In my new Form 1065 (K-1 Partner)
- All investment is at risk
- I left line 1 15,000 business income and line 4b 5,000 Guaranteed payments for capital, since that is the original situation.
- I checked materially participated
- On the K-1 Partner Additional Info form, I included the 2,000 in Outside Expenses, Interest Paid (line 2)
Here are the results:
Form 1065 (K-1 Partner):
My original form
- Both sections A & B *do not* include the -2,000 amount on line 1f (interest expense), column c (Net Income (Loss) Allowed).
- Both sections A & B include the -2,000 amount on line 1a (interest expense), column a (Gain (Loss) Limited by Form 6198 if Applicable)
- Section C incorrectly includes an additional 2,000 on line 1j to make the income 22,000
My new form -
- Both sections A & B include the -2,000 amount on line 1f (interest expense), column c (Net Income (Loss) Allowed).
- Both sections A & B include the -2,000 amount on line 1a (interest expense), column a (Gain (Loss) Limited by Form 6198 if Applicable)
- Section C does not include the additional 2,000 and correctly has 20,000
Schedule E, p2, lines 28 and 29
The amount from my original form incorrectly lists 22,000 on line 1, column k (Income K-1), and on line 2 lists the 2,000 interest expense in column i (Loss K-1)
The amount from my new form correctly lists 20,000 on line 3, column k (Income K-1), and on line 4 lists the 2,000 interest expense in column i (Loss K-1)
