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kgraf25
New Member

Interest income reported on a K-1 included self charged interest not be subject to the surtax on net investment income reported on Form 8960.

 
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12 Replies

Interest income reported on a K-1 included self charged interest not be subject to the surtax on net investment income reported on Form 8960.

What do you mean "self charged interest "?
Carl
Level 15

Interest income reported on a K-1 included self charged interest not be subject to the surtax on net investment income reported on Form 8960.

What do you mean by "self charged interest"? What kind of K-1? It matters. 1065 K-1? 1120-S K-1? 1041 K-1?

Interest income reported on a K-1 included self charged interest not be subject to the surtax on net investment income reported on Form 8960.

Interest income reported on a K-1 included self charged interest not be subject to the surtax on net investment income reported on Form 8960.

Please answer our questions so we can help ... are you trying to file the personal return ?  If so you cannot adjust the K1 ... you must have the company that issued the K1 correct that form to have the correct info on it... but we still don't know what kind of company it is  and what it is for ... please respond to this thread and not open new ones as that gets confusing.

Interest income reported on a K-1 included self charged interest not be subject to the surtax on net investment income reported on Form 8960.

Ok ... so from the other post you did say S-corp ... so please explain how you charged yourself interest ? Did you take out a loan from your own company ? And if so why did you ever charge yourself interest ?

Interest income reported on a K-1 included self charged interest not be subject to the surtax on net investment income reported on Form 8960.

Obviously, I have no insight as to how this situation came about, exactly, but it is virtually irrelevant since any adjustment would have to be made in Forms Mode directly on Form 8960 and the original poster is, from the profile, using an online version of TurboTax (in which the adjustment is not supported).

 

See https://digitalasset.intuit.com/DOCUMENT/A7aTcVUwu/2018-unsupported-calcs-L1FQfTTgn-073019.pdf

Interest income reported on a K-1 included self charged interest not be subject to the surtax on net investment income reported on Form 8960.

Based on the limited facts, I am assuming that you loaned the S corporation money and there is a note tied to the loan that has a stated or variable interest rate.

 

In addition, I am assuming that you have interest income being reported on your K-1.  In that case, you now have what is known as self-charged interest.  The passive activity regulations allow a taxpayer to reclassify some or all of this interest income as passive income.  There are rules that dictate when you can do this and how much can be reclassified.  This forum is unfortunately not set up to provide the necessary guidance to provide much more assistance as it would require too much information.  If you are wanting to attempt to handle this your self or want a better understanding, you need to look at regulation 1.469-7.

 

However, while not having many facts, if you are subject to the NIT I would recommend that you have a tax professional provide assistance in preparing your tax return.

 

Additionally, even if you reclassify the self-charged interest as noted above, you are still dealing with a passive activity which is subject to the NIT if you exceed the floor.  All you are doing here is really offsetting the interest income and the interest expense which you would get to either way.

*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.

Interest income reported on a K-1 included self charged interest not be subject to the surtax on net investment income reported on Form 8960.

I qualify under 1.469-7 to recharacterize self charged interest income as passive activity income.  My problem is figuring how to enter it on Turbo Tax for 2019.

DavidS127
Expert Alumni

Interest income reported on a K-1 included self charged interest not be subject to the surtax on net investment income reported on Form 8960.

The 2019 version of the PDF shared by Community Champ tagteam (earlier in this thread) continues to report (on pages 6 and 9 of the PDF at this link) that TurboTax does not support reporting self-charged interest income or expense related to a passive activity as either passive activity gross income or passive activity deduction.  The PDF directs users to consult the instructions for Schedule K-1.

 

These links may help provide insight into how you can report the recharacterization using the Forms mode of TurboTax Download/CD version:

 

https://www.irs.gov/instructions/i8582#idm140476817015344

 

https://www.irs.gov/instructions/i1120ssk#idm139641013685664

 

https://www.irs.gov/instructions/i1065sk1#idm139898006934128

 

https://www.irs.gov/publications/p925#en_US_2019_publink1000104596

 

https://www.thetaxadviser.com/issues/2010/dec/casestudy-dec2010.html

 

 

 

 

 

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Interest income reported on a K-1 included self charged interest not be subject to the surtax on net investment income reported on Form 8960.

Thank you for the information.  Using the desktop Premier version, it is not possible to override line entries on Form 8582. Do you have another suggestion?

DavidS127
Expert Alumni

Interest income reported on a K-1 included self charged interest not be subject to the surtax on net investment income reported on Form 8960.

Making the adjustment in Forms mode on the "source" Schedule K-1 that populates the Form 8582, may be possible.

 

@mrKlein

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Interest income reported on a K-1 included self charged interest not be subject to the surtax on net investment income reported on Form 8960.

By "source" do you mean as if coming off a K-1? That's what  I'm trying to create, up, a K-1 sourced entry to generate the desired result.

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