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conch44
Returning Member

Why is TurboTax Business Download treating land rental income as non-passive on K-1

I am the trustee of a trust that received $532 in rental income for farmland in 2023. I'm distributing the full amount to the beneficiary (me). I completed the forms on my own, then bought TurboTax Business Download plus Illinois to check my work.

I put $532 on Schedule K-1 in box 7, Net rental real estate income. TurboTax places that amount in box 5, Other portfolio and nonbusiness income. When I click on the field to find the source it takes me back to a worksheet Dist Inc - K-1 where $532 is listed under (e) Non-passive Income instead of (f) Passive Income. On the General Information Smart Worksheet under Schedule E, I did not check the boxes for Material participation or Active participation. I also said no to the Qualified Business Income question. Why is TurboTax treating this as non-passive? Is TurboTax listing it in box 5 because I said no to QBI? 

In addition, this income is all attributable to Illinois, I asked TurboTax to generate a K-1-T and here the income is again characterized as nonpassive but now it is business income instead of nonbusiness. Also the Illinois share is 0 but I was able to edit it to attribute the full amount to Illinois. Now I owe $26 on my Illinois 1041. For my Federal return, the trust doesn't pay tax, I attach the K-1 to my 1040 and it's taxable there. Apparently Illinois is the opposite, the trust pays the tax? Now I attach the K-1-T to my Illinois individual return where TurboTax tells me I'm due a refund of $1.

I need help with the passive/non-passive and business/non-business aspects of these returns. Thanks in advance for any insights.

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