Losses from K-1 when cost basis is zero

Forum|Forum|4 months ago
April 4, 2026
3 replies
223 views

I have received K-1 form for an exchange fund where I contributed some stocks with capital gains. The K-1 Box 13 has interest expense that can be deducted if updated cost basis (that I track outside on my own) is more than 0. Unfortunately my cost basis in stock was very small, so I have now zero cost basis so I cannnot deduct the Box 13 interest expense. However I should be able to carry it forward.

I am using. Turbotax Premier and in the schedule K-1 interface there is no place where I can tell Turbotax that my cost basis is zero so let us not deduct the interest expense and carry it forward. I see Turbotax is adding the expense in Form 4952 and deducting the interest expense, not sure how to make it do the right thing. Any idea how can I so this?

Thanks

MelindaS1

Level 6

The workaround is to just not enter the box 13 interest expense when filling out the K-1 menu, or to enter it as 0 - since that is the amount of the expense that is deductible.

The IRS will already have a copy of this K-1, of course, but their systems create automated notices for underreporting of income, not apparent overreporting. If, in the odd case that this were to trigger a request for additional information, you would provide them with a copy of your basis tracking worksheet and the above explanation to explain your tax reporting.

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superduper1967Author

Level 2

Thanks for your response. I guess I could not report the interest expense and it won't get tax deducted.

I notice that while filling K-1 information, after filling all the income and losses, we get "Describe the Partnership" page where it has option "I have at-risk loss". If I click it, it opens up "Enter your at-risk loss carryover on the Form below". It shows a "At-Risk allocation worksheet" which has columns about "Total current loss", "Carryover prior year loss", "Allowed loss", "Disallowed loss". It seems may be this is a place where disallowed loss can be put in? Anyone has experience working with this "At-Risk Allocation worksheet" in regard to K-1, it may perhaps be used in my case to make Turbotax do the right thing?

Thanks

MarilynG

Level 15

The TurboTax "At-Risk Allocation Worksheet" regarding Schedule K-1 (Form 1065 or 1120-S) calculates deductible losses when your investment is not fully at-risk. It limits loss deductions to the amount you are personally liable for, typically activated by checking the "I have at-risk loss" or "some investment is not at-risk" box.

Your at-risk amount usually includes cash contributed, adjusted basis of property, and debt you are personally liable for, decreased by distributions and previous losses. Losses exceeding your at-risk amount are suspended and carried forward to future years.

Here's more info on how to enter Carryover of K-1 Disallowed Loss in TurboTax.

@superduper1967

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