TurboTax 2024 K-1 Box 14 Code Question

[bohicaIL]

I'm in a General partnership which provided a large capital loss and some operating loss in 2024.  It's oil and gas, so the losses are non-passive and offset other ordinary income fully in 2024.  Under income Box 1, there is a loss listed.  Then on Box 14, Code A is listed with the same loss.  But somehow Code A causes all the losses to be added back into form 8960 line 4b, which increases my tax obligation.   Oddly, the dollar amount in Box 14 doesn't matter, only that Code A is selected.   (Codes B or C do not feed back into form 8960. )   This seems like a TurboTax bug to me, but I'm not positive.   Anyone able to shed any light on this?

[Mike9241]

It's not a bug. Net Investment Income does not include any  any item taken into account in determining self-employment income IRC 1411(c) (6)

in other words, that loss is not an investment (income) loss for the NIIT tax

[bohicaIL]

Thank you, Mike.  But why, then, would a zero amount in box 14 still trigger the entire capital and ordinary income loss from the rest of the form to be fed back into 8960.   Just the Code A did that.

[KristinaK]

Line 4b of Form 8960 is an adjustment to the income reported on line 4a that is subject to NIIT. It flows from your K-1 to 8960 to reduce the income that is subject to NIIT (if it shows up on that line as a negative amount). Are you reporting the amount on your Schedule K-1, box 14A as a negative amount? 

[bohicaIL]

Hi Kristina,

Box 14 had a negative amount in it, so that's what I put on the k-1 box 14.  But with code "A" in box 14 selected, the amount in box 14 doesn't matter, positive or negative.   It seems to assume that all capital losses as well as ordinary income losses are due to self employment (not actually true here), and get added back into 8960 4b (disallowed).  So taxes go up.

Thanks!

[PatriciaV]

It would be helpful to have a TurboTax ".tax2024" file to test this issue further.

If you would be willing to send us a “diagnostic” file that has your “numbers” but not your personal information, please follow these instructions: 

In TurboTax Desktop, open your return and go to Online in the TurboTax header. (On a Mac computer, choose Share or Help.)

1. Choose Send Tax File to Agent.
2. You will see a message explaining what the diagnostic copy is.  Click Send on this screen and wait for the Token number to appear.
3. Reply to this thread with a screenshot of your Token number (this avoids Community filters for numbers with a dash) and tag (@) the Expert requesting the token from you.
4. Please include any States that are part of your return - this is VERY important.

We will then be able to see the same experience you are having. If we are able to determine the cause, we'll reply here and provide you with a resolution. 

[bohicaIL]

@PatriciaV 

States in file are Colorado (resident state) and West Virginia (non-resident)

[PatriciaV · Accepted solution]

Thank you for the token. We have reviewed the entries and calculations relating to Schedule K-1 and Form 8960. It appears your entries are correct and that the program is handling this situation properly.

According to the IRS Instructions for Form 8960 Line 4b: "Enter the net positive or net negative amount for the following items included on line 4a that aren’t included in determining net investment income. [This includes] Net income or loss from a section 1411 trade or business that’s taken into account in determining self-employment income."

Because the net loss from Schedule K-1 is non-passive and thus excluded from Net Investment Income (NII), that amount must be eliminated from the calculation of NII. Only passive income is included in this calculation. The net amount on Form 8960 Line 4c represents the net income for your rental property from Schedule E (passive income).

[bohicaIL]

@PatriciaV 

Thanks, Patricia.  I'll have to digest what you said in detail, but it makes sense and explains it.   I am still a bit confused as to why just the Code A in Box 14 triggers that addition back, though, regardless of the amount (negative or positive) in box 14.

Thanks,

bohicaIL