Rental Income from an LLC

[TG13566]

My husband and I purchased a property in 2022 through an LLC in which we are the only members. I did a 1065 with K-1's for this LLC. In TT, I enter this information in the Personal Tab/Business Investment and Estate-Trust Income (Schedule K-1). I am a real estate professional who Actively and Materially invested in this property business as my main job. The LLC rents this property to my husband's sole proprietorship and I did choose Special Handling in the K-1 report. We have a big rental income loss. The rental income is not showing as QBI income.  Is this correct - that the rental loss will only offset rental income? Or am I not correctly entering the information into TT?

[Anonymous_]

It appears as if you have a self-rental type scenario (i.e., own the property and lease it to your business). 

Regardless, why are you entering the K-1 in the Estates or Trusts section? 

I am going to page @AmeliesUncle for input.

[AmeliesUncle]

Did you tell the software that (1) you Materially Participated in the rental and (2) that you are a Real Estate Professional (assuming you meet the IRS definition of one, which may not necessarily apply to all people who work in real estate)?

I don't think the program asks about a being a Real Estate Professional in the K-1 section.  If that is the case, you need to either (a) go into the 'regular' rental section and tell the program you are a Real Estate Professional, or (b) go into "Forms" mode and check the box on the information sheet (but you can only do that if you use the CD/downloaded version of TurboTax).

If I remember correctly, if you need to do the "Special Handling", that generally means you need to manually go into a different section for reporting something.

[Anonymous_]

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@AmeliesUncle wrote:

I don't think the program asks about a being a Real Estate Professional in the K-1 section. 

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The program asks about "active participation" but not about Real Estate Professional status. It does, however, ask whether the rental "qualifies as a trade or business".

Regardless, a user would need to enter Forms Mode and check the "materially participated" box on the K-1.

[AmeliesUncle]

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@Anonymous_ wrote:

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It does, however, ask whether the rental "qualifies as a trade or business".

I suspect that may be for QBI purposes (although the OP mentioned not qualifying for QBI). 

It's interesting that it asks about "active" participation but not "material".  Well, if it doesn't ask about a Real Estate Professional either, I guess all of that needs to be done manually.

[Anonymous_]

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@AmeliesUncle wrote:
I suspect that may be for QBI purposes (although the OP mentioned not qualifying for QBI). 

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I believe that's exactly right; the question is for the purposes of QBI as it doesn't make much sense otherwise.

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@AmeliesUncle wrote:
It's interesting that it asks about "active" participation but not "material".  Well, if it doesn't ask about a Real Estate Professional either, I guess all of that needs to be done manually.

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It's a bit strange since all of those questions get asked when rental property is entered in the Rental section (Schedule E, page 1) while the entries need to be made manually when entering information from a K-1.