PTE Tax on K-1

[Kat36]

I received a federal K-1 with a PTE Tax deduction listed on line 13.   Why does this not reduce my 1040 federal tax liability amount after I entered the balance?  I thought PTE tax is a business deduction of the pass-through entity issuing the K-1 and thereby also reduce income on my K-1.  However, it seems to have no effect on my taxes.  Is there a particular way I need to enter this amount?

[Mike9241]

the PTE would be an itemized deduction included with other deductible taxes on schedule A.

if you don't itemize or have already reach the max for 1040 schedule A taxes ($10K other than married filing separate which is $5K). however, this would be considered a state income tax paid by you for state income tax purposes.  if this is an out of state tax and you have an income tax in your state, depending on your states rules you may be able to claim a credit for taxes paid to other states. if this is an in-state tax you should be able to take it as a tax payment to the state (like withholding or estimates).

this would require you to complete your state k-1 that probably was included with the federal k-1. 

[Kat36]

Thank you.  The PTE taxes are for the state I reside in not out of state.  I thought the point of electing to have the partnership pay the state income tax due was to circumvent the $10K SALT caps.  In states that have adopted a PTE tax, the partners and shareholders can elect to have the PTE pay the state income tax due on the PTE’s business income. This is equal to what partners and shareholders would otherwise pay on their personal tax returns. The PTE then claims a federal business expense deduction for the state income tax payments.  The PTE can pass that business expense deduction to its partners which doesn't have the same $10K limitation.  Of course depending on the state, the states that have enacted PTE tax election may handle them slightly differently.  

[Mike9241]

 I may stand corrected. but I question why it's on line 13 rather than a deduction against business income directly on the k-1 which was ruled on .    then I would guess to avoid a double benefit at the state level it would be an add-back and then you get a credit for it. 

whether every state PTE qualifies depends on whether it meets the terms specified in IRS notice 2020-75.  Part 3.02(3) says it's not a separately stated item so you need to ask the preparer why it was separately stated since proper treatment would seem to be a deduction directly on line 1, 2 or 3 whichever applies.  

 https://www.irs.gov/pub/irs-drop/n-20-75.pdf 

[Kat36]

Sounds like the issue might be the classification.  Because the PTE tax is classified as 13W which is not deductible in Turbotax, it may need to be treated differently.  Does anyone have any recommendations?