I have a K-1 from a Restaurant I invested and I do not participate in management of the business.
It reported loses of $7K this year (and the prior year -$4K).
All of my investment in this activity is at risk.
After entering the K-1 information into TurboTax, the final Schedule E (form 1040) has '0' for the Passive Loss and Line 41 Total Income or (loss) is 0.
Why does it show as $0 instead of -$7K?
When i look at Form 8528 (Passive Activity Loss Limitations), I do see the -$7K and -$4K from the prior years in Worksheet 3.
Am I not understanding this correctly? Is Turbo Tax not entering the K-1 correctly or did I enter the information incorrectly?
Can I only use this passive income loss to offset passive income? Or do I need to wait until I have a complete loss?
Thank in advance!
I have a K-1 from a Restaurant I invested and I do not participate in management of the business.
It reported loses of $7K this year (and the prior year -$4K).
the fact you do not participate makes the loss passive. since it is not rental real estate, the passive loss is disallowed in its entirety. you do get a carryforward for the loss. it will continue to be non-deductible until there is income to offset it or you dispose of the activity. refer to form 8582
Thanks for the quick reply Mike 9241.
I have another K-1 for a Real Estate Investment (rental property) which I also do not materially participate in. I entered a loss in Part III Box 2 (Net rental real estate income/loss). This also shows up as '0' in Schedule E (form 1040).
Should it also show as 0 like the restaurant investment?
I see both investments in Form 8582.
Yes, since you do not materially participate in the rental real estate, the loss is subject to the passive activity loss rules as Mike9241 describes above. For a rental property, the exception is if you actively participated in the rental property, then you could deduct up to $25,000 of your rental loss even though it’s passive. See more information here: Real Estate Tax and Rental Property