K1 income increases my taxes but loss does not decrease it.

diskapi2 · ‎May 3, 2023

Hi,

I have a K1 which shows income, for which I have to pay taxes.

I entered various numbers for box 1 of the K1 into TurboTax to see the impact on the tax. I noticed that losses in the box 1 does not lower my final tax but profit in box 1 does increase the final tax.

What could be the reason for this?

Thank you for your answers.

Mike9241 · ‎May 3, 2023

if a publicly traded partnership - PTP - (Part 1 box D) losses are suspended and can only be used against future income of that partnership or they're released when you dispose of your interest in a fully taxable transaction. income is taxable. If not a PTP then likely you're subject to the passive activity loss rules. slightly different in that the passive losses from one can be used to offset passive income from another. the computation of any allowed loss is on form 8582. assuming this is a k-1 from a partnership or S-Corp you must materially participate for losses to be allowed otherwise it's a passive loss which will only br utilized if there is passive income

see IRS PUB 925

https://www.irs.gov/pub/irs-pdf/p925.pdf

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Mike9241 · ‎May 3, 2023

if a publicly traded partnership - PTP - (Part 1 box D) losses are suspended and can only be used against future income of that partnership or they're released when you dispose of your interest in a fully taxable transaction. income is taxable. If not a PTP then likely you're subject to the passive activity loss rules. slightly different in that the passive losses from one can be used to offset passive income from another. the computation of any allowed loss is on form 8582. assuming this is a k-1 from a partnership or S-Corp you must materially participate for losses to be allowed otherwise it's a passive loss which will only br utilized if there is passive income

see IRS PUB 925

https://www.irs.gov/pub/irs-pdf/p925.pdf