Schedule K-1 Error in Turbotax?

[Stepho]

In Part III of K1

Check Type of Activity Reported on this K1

(I check)  Multiple Type of Activities  (Can only check off one box)

My K1 Has

1) Business

2) Net Rental Real Estate (Loss)

BUT on review Turbotax asks me to delete the $ Loss in box 2  for Net Real Estate Rental Loss.

Won't let me file without?

HELP

Thanks Steve

[nexchap · Accepted solution]

You have to create 2 K-1s within TurboTax for this partnership.  You report box 1 on one of them, and report box 2 on the second. 

All the other boxes on the K-1 need to be split between the two (not entered twice).  Options are to actually split each entry based on how it contributed to box 1 vs box 2.  Or, if one of the two entries dwarfs the other, you could enter all the other values on that K-1 and leave everything off the other.

[Kozyt]

This is a bunch of BS.  Turbo Tax has known about this error for years and refuses to correct it.  This is the last year I will ever use TT.

[nexchap]

@Kozyt What error?  Here's an example of why TT can't split a K-1 automatically, or report everything on a single K-1:

• Line 1 is an Ordinary business loss of -2000
• Line 2 is rental income of $500
• Line 10 is a gain of $1000

How should line 10 be allocated?  Does it apply to the Ordinary Business?  If so, $1000 of those losses would be released and $1000 suspended.  Or does it apply to the rental side?  Then, all $2000 of the line 1 losses are suspended.

This is why the values need to be split, and the split can't be done by a computer's formula.

[whollycow]

I would like to take a moment to respond to the questions asked about the Schedule K-1. Thanks go out first, to the volunteer support crew who are trying to help us troubleshoot this mess. Without you folks, we would be struggling big time!

In this particular instance, I believe Turbo Tax has an obligation to fix this error, and here's why:

I had to file an extension because of a K-1 that wasn't completed in time for the 4/15 deadline. I finally received my K-1 in July, 2022. So on a rainy Labor Day weekend, guess what? I fought with the Turbo Tax K1 form, going round and round in circles trying to correct an error manually, trying to correct my error through the step-by-step questionnaire, etc., and nothing would fix it. No matter what I did, I would be ready to submit my return at the e-file page, then Turbo Tax would tell me that errors were found in my K-1, and it would direct me to the fields that needed correcting. Keep in mind - sometimes people receive a K-1 that doesn't have the information that TurboTax is asking at the form prompts or step-by-step question fields. Each time I would try to fix them, I would go through a never-ending circle of "errors were found" screens. I stumbled across this post, but the experts didn't tell us how to create a second K-1 form, so I went back to trying to figure this out on my own. Of course, Turbo Tax purposely makes it difficult to reach a live human for support (I didn't try on the holiday but on subsequent days), and I finally submitted my return "with errors" just so I could end the 3 to 4 hours of troubleshooting I spent on all this.

Our experts here suggest we should create a second K-1 form. But where is the prompt to do that? There isn't an option under forms, nor is there an option under the step-by-step guide. I leave it up to TurboTax to fix this problem. It's a software glitch, plain and simple, and they owe it to their customers to fix it.

[nexchap]

@whollycow To create a new K-1 (in the desktop version of TT):

• In Forms, select 'Open Form', type K-1, and you'll see choices for different K-1 forms that can be opened.  If you select, for example, Sch K-1 Wks-Partnerships (which is what all the MLPs are if that's what you're working with) you'll see a list of all your existing K-1s, but also (at the bottom) the option to type in the name for a new one.
• In Step-By-Step, Federal Taxes, Wages&Income, "I'll choose what I work on", Schedules K-1 you can get to a list of all your K-1s.  At the bottom of that screen is a box for "Add Another K-1".

While some areas of the tax code can be automated to the point that no judgement / tax understanding is required, partnerships aren't one of them.  While it would certainly be nice if TT offered to automate some tasks (e.g., splitting a K-1 when multiple forms of income are reported), even that comes in many permutations (I've had K-1s that split into 6 different pieces).

[rruizfamily]

Hi. When you state 'all other boxes ... need to be split", do you mean 1-21?  What about K1, L, and N?

[PatriciaV]

If your K-1 shows more than one type of activity (ie: Box 1 and Box 2), treat each one separately. Enter all Box 1 business items on one K-1 and all Box 2 rental items on a separate K-1.

When you add a new K-1 for the second activity, enter only the information from Part I, skip Part II, then enter the amount from Box 2 (rentals).

If, however, you received additional information with Schedule K-1 that provides a breakdown of the amounts in the other boxes, use this info to split the other box amounts between the K-1s. Otherwise, follow the instructions above.

@rruizfamily 

[rruizfamily]

Thanks @PatriciaV 

Another related question based on your response: do I also split the K-3 data?

TT is prompts me for K-3 data.  Seems that some of the the K-3 data applies to "Business income" (Box 1 on K-1), and other K-3 data applies to K-1 Box 2 "Net rental real estate income".  Should I take that into consideration by subtracting (or not including) specific K-3 data depending if I am answering TT's questions about K3-data for K-1 COPY #1  and for K-1 COPY #2 ?

[PatriciaV]

Yes, if Schedule K-3 has entries specific for the types of income reported on each K-1, check Box 16 on both K-1's so that TurboTax prompts you for K-3 input.

Likewise for Section 199A. Enter Box 20 Code Z on each K-1 if Statement A reports QBI input for each type of income.

@rruizfamily