K1 income not passive, but Turbotax enters it as passive

[Mike300]

Hi,

I've got a K1 that says none of the income flowing through to me is considered passive.* But Turbotax automatically considers it passive. How do I change that in the program?

Thanks,

Mike

* From the K1: PLEASE NOTE THAT NONE OF THE DISTRIBUTIVE SHARE ITEMS REPORTED ON SCHEDULE K-1 ARE CONSIDERED AS DERIVED FROM A PASSIVE ACTIVITY UNDER TREASURY REGULATION SECTION 1.469-1T(E)(6).

[tagteam · Accepted solution]

You  might want to contact Support (link below) for this issue,

https://ttlc.intuit.com/community/using-turbotax/help/what-is-the-turbotax-phone-number/00/25632

To the best of my knowledge, if you answered the preliminary questions correctly in the K-1 section of the program, then the only way to change the treatment from passive to nonpassive would be in Forms Mode directly on the K-1 in Section C.

[stephaniel]

Adding a +1 to this - I'm also seeing this same problem. The statements in the K-1 I received from an estate (for non passive rental real estate income) very clearly list the income as "non passive income". The K-1 gives instructions to file that income under Schedule E, line 33, column F (non passive).

However, no matter what options I click in the interview mode, I can't get Turbo Tax (Mac version, downloaded) to record it in the K-1 worksheet as non passive income; when I examine the underlying form, it always gets entered as passive. This means that, when the K-1 worksheet gets transferred to the Schedule E, the income is placed in the wrong box: Schedule E, Line 33, column D (passive), instead of non passive as it is listed in the K-1 I received from the estate.

I thought of editing the form myself, but there are all kinds of warnings about how I can't e-file if I do, and/or Turbo Tax won't back my return calculations anymore. Any help would be appreciated.

[tagteam]

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@stephaniel wrote:

I thought of editing the form myself, but there are all kinds of warnings about how I can't e-file if I do, and/or Turbo Tax won't back my return calculations anymore. Any help would be appreciated.

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Unfortunately, it does appear as if the program supports that (or a similar) scenario.

See https://digitalasset.intuit.com/DOCUMENT/A7LDFEv4x/040120-2019-unsupported-calcs-L1FQfTTgn.pdf

[tnnguyen1]

I have the exact same problem.  I own some residential properties that I rent out under a LLC. I actively manage these properties and file a tax return for the LLC using TurboTax for the first time this year. Now, I try to use TurboTax to file personal tax return for the first time. My accountant has reported the rental income from schedule K1 as non-passive in previous tax returns. For some reason, possibly a bug in the software, my K1 rental income always appears as passive income in schedule E, even though I kept trying different answers in the interview section. I would very much appreciate it if someone could suggest a solution or workaround to this problem.

[DavidS127]

Rental activities are considered passive activities unless you materially participated as a real estate professional.  See the section of IRS Publication 925 at this link for more details.

TurboTax treat income and losses from real estate activities accordingly, i.e., you must be a real estate professional and must materially participate in the operation of the rental activity.

@tnnguyen1

[Mbrody]

I am an asset manager who materially participated in the profit/ loss. Is it possible to have turbotax reflect this? I checked the box for "materially participated" but the income is still reflected on the wrong part of schedule E.