K-1 Box 13W

[phildonnia]

I have a K-1 from a partnership with an amount in Box 13W.  The K-1 came with instructions to put this amount on Schedule E as a non-passive loss.

1. Is this correct? I do not “materially participate”, so can I still have a non-passive loss?
2. Do I need to count this loss against my QBI on Form 8995?

[KathrynG3]

First, what kind of non-passive loss do you have? What is the loss from?

Second, regarding material participation, it would be best to check the material participation tests beginning on page 5  of 2019 Publication 925, Passive Activity and At-Risk Rules.

Third, it depends, I recommend consulting the QBI Flow Chart on page 6 of 2019 Form 8995 Instructions for your specific situation.

For entering the details for Box 13W, in TurboTax, be sure to click the Nonpassive Deductions to be Reported on Schedule E, Page 2 box. You will be prompted to enter the Description and Amount. These details should be in your Schedule K-1. Then, click Continue and continue entering the Schedule K-1 details.

[phildonnia]

Thanks for your insight.  

1. The deductions are called "Trading Expenses" in my K-1 instructions.  

2. There is absolutely no way I can be considered a material participant.  I sent them money, and I get tax statements.  That's it.

3. The flowchart on Form 8995 comes down to :

"Is the item income (loss) from a qualified PTP? If “Yes,” it’s not QBI, but it’s included in the REIT/PTP component of the QBI computation. Include this item as a qualified item of income, gain, deduction, or loss from a PTP."

What does that mean?  Does it go on 8995 or not?

[KathrynG3 · Accepted solution]

That particular question means:

Is the item income(loss) is from a qualified PTP? If answer yes, then no, it is not QBI. However, if you answer yes, for a REIT/PTP component, then you do need to include it in QBI.

For the material participation question, if you are referring to PTP's, this may shed some light on why you could not materially participate but have nonpassive income:

2019 Form 8582 Instructions page 13: Regarding PTP's, the treatment is this:

• The gains/losses of this investment can only be carried over for this PTP.
• If the PTP has an overall gain, it is treated as nonpassive
• If the PTP has an overall loss, then it is treated as passive

2019 Form 1065 Instructions page 13:

If the partner doesn't materially participate in the activity, a trade or business activity conducted through a partnership is generally a passive activity of the partner.

Each partner must determine if the partner materially participated in an activity. As a result, while the partnership's ordinary business income (loss) is reported on page 1 of Form 1065, the specific income and deductions from each separate trade or business activity must be reported on attached statements to Form 1065. Similarly, while each partner's distributive share of the partnership's ordinary business income (loss) is reported in box 1 of Schedule K-1, each partner's distributive share of the income and deductions from each trade or business activity must be reported on attached statements to each Schedule K-1. See Passive Activity Reporting Requirements, later, for more information. (page 16)

In TurboTax, indicate that you did not materially participate. Proceed with entering your details as you received them for your Schedule K-1.

The REIT 199A dividends reporting is being worked on. I will update you when the issue is resolved. 

[Edited 3/10/2020 | 2:14 PM PST]

@phildonnia