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jchutch
Returning Member

Pass-through Items for 1065 K-1s

I am trying to prepare a form 1065 for two-member LLC that is a mineral owner lessor, which I have done in the past with other software, but have encountered two problems with TurboTax Advantage Business (desktop).

1. It looks like TurboTax is treating lease bonuses, royalties and expenses as a trade or business, when the all should be treated as pass-through items reported on the K-1's generated with the 1065.

2. I do not see anywhere where depletion allowance for a partner (for tax purposes) is reported. This should be a disclosure on the K-1 but not reported as a partner activity expense.

3. TurboTax keeps asking me for property information, referring me to a Rental Real Estate tab under Business Information, but there is no such tab (and the one under Federal Income just refers me back to Business Information). Again, this activity should not be treated as a trade or business of the partnership, so I'm afraid the software is missing the point here.

I am clear on what the IRS form needs to do, but not clear on how to get TurboTax to do this.

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2 Replies
jchutch
Returning Member

Pass-through Items for 1065 K-1s

Sorry - To clarify my post, I meant three issues, not two, of course. More substantively, it looks like TurboTax is defaulting to treating everything as part of a trade or business when the activity being reported in this case all belongs on Schedule K (and, by that, to partners on K-1). I can't find how to do that with this software. Any suggestions?

jchutch
Returning Member

Pass-through Items for 1065 K-1s

I think I have answered my own questions. I started over the return and did not select real estate rental, reporting everything in the Royalty section, with lease signing bonus reported as "Other," to assure ordinary income treatment and exclude it from royalties for depletion allowance calculation purposes. The income and expense items now appear to be flowing through to Schedule K, rather than being treated as a "trade or business" on pages 1 and 2 of the 1065 (except for the signing bonus).

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