Sec 754 Deprec on a K-1 - how to enter?

[MikeinSC]

Last year there was a Code W iirc to automatically get this deduction entered on Sch E.  I do not see it now and the code ZZ on the K-1 does nothing.  Do I need to set up a separate K-1 to enter this or just reduce the rental income by this amount?

thanks.

[PatriciaV]

The IRS made extensive changes to coding for several boxes on Schedule K-1. The detail for Schedule K-1 Box 13 Code ZZ may be added to Schedule E, page 2, only in TurboTax Desktop. If you're using TurboTax Online, you'll need to make a manual entry of a miscellaneous expense for a related Schedule E property.

In TurboTax for Desktop:

1. Open your return and click the Forms icon in the TurboTax header. 
2. In the list of Forms in My Return on the left, find K-1 Partner for the partnership with Box 13 Code ZZ and click on the form name to open it in the large window. 
3. Scroll down to Line 13. If you entered Code ZZ, this should already be on the first line. Otherwise, use the drop-down box to choose Code ZZ.
4. Click the QuickZoom link under Box 13 for codes R and W to ZZ. A supplemental form will open.
5. On Line 4 under Code W to ZZ, enter the amount in the box to the right. Notice this line is used to reduce income(loss) in Box 1.
6. Click Step-by-Step in the header to return to the main screens.

[edited line number 4/6/2024 | 7:22 am PDT]

[MikeinSC]

Thanks.  Does it make sense that this is non-passive?  This is rental real estate.

[hbandkk1]

I have the same problem exactly. I can't believe the solution is so complicated.

[MikeinSC]

Something is not right with this.  I did what was recommended and it shows as a non-passive loss, which gives me 100% of the depreciation, but the activity has a loss and as of now, I have not entered any other passive income - I should not get any of the loss.  

I think the only way around this is to either 1) go ahead and deduct the depreciation from the amount reported as a loss from the partnership on line 2 of the K-1 and make a note of it if ever questioned about it or 2) create a 2nd K-1 entry just for the depreciation amount, which gives a better audit trail.  I do not understand why this was changed.