Why won’t turbo tax allow me to take a loss on my K-1 when I have basis, materially participate and meet all the criteria for taking the loss?

[mitchg219]

I have affecting this loss on my return for many years. Despite entering all the right information to be able to the deduct but TurboTax still shows $0 as opposed to a loss. I will have to find another way to prepare and file this return if TurboTax will not allow me to take this loss.

[Anonymous]

what type of loss real estate or other?   a private partnership of publicly trade one? is your agi over $150,000?

are you a real estate professional.   but perhaps the easiest way to see why TT limited your loss is to look at form 8582 if other than a publicly traded partnership.   then if you tell us what appears on that form - what lines, maybe we can help you. 

[DavidS127]

As Community user HACKITOFF suggested, more information about your issue may help resolve your issue.  For example, what kind of K-1 ( partnership, S Corp, etc.) are you entering, what types of income are being reported on that K-1, if a rental property did you indicate you were a real estate professional, and what do mean by the phrase "I have affecting this loss on my return for many years"?

@mitchg219

[mitchg219]

It is a K-1 for a partnership. I am at risk, have basis and I materially participate. I meant to say earlier is that I have been able to deduct losses in prior years using other tax software.
 
I believe the way I answered all of the questions the these software should have treated my loss as a non-passive loss! What else can I possibly do?

Can someone walk me through the answers I need to give in order to be able to take the losses as non-passive losses?

[DavidS127]

Unless you meet the definition of a real estate professional, the activity is treated as a passive activity by the IRS.  See this section of IRS Publication 925 for more information on the qualifications for a real estate....

[IJJE2005]

My husband is a real estate professional but I still can't get turbo tax to allow the loss.  There is no option to check that under the K-1 section.  I called Turbo Tax and the specialist with whom I spoke could not figure it out either.  Do I just need to use a different software?

[GeorgeM777]

The questions relating to Real Estate Professional are found in the Rentals, Royalties, and Farm section.  If you are using TurboTax online, go to Income & Expenses, then scroll down the page to Rentals, Royalties, and Farm.  Select Rental Properties and Royalties.

In TurboTax CD/download, the process is very similar except you will select Business, and then from Business Income and Expenses, select Rental Properties and Royalties.  Then enter your information. 

@IJJE2005

[Diane in MT]

I'm having a similar problem.  I have a K-1 loss on rental properties that TT won't recognize.  I have substantial (way more than loss) basis and materially and actively participate.  Pub 925 says there's a $25000 allowance if you actively participate.  Help!  I am not a real estate professional.

[RobertB4444]

There is a $25,000 allowance for losses but it is limited by your income.  If your income goes above $150,000 then your loss is completely phased out.

Here is a good look at the rental real estate rules.

@Diane in MT 

[Diane in MT]

Thanks for the response.  Our income is not over $150,000.

[RobertB4444]

In that case make sure that the K1 lists you as an active individual and not a passive one and that you have told the TurboTax system that you are acting actively.  Also, you don't mention it but I assume that you own more than 10% of this partnership or S-Corp?

@Diane in MT 

[Diane in MT]

yes- 20%.  Since the loss is reported in line 3, and it doesn't reduce our 2022 taxes, can we add this loss to the basis in 2023 when we sell the property?

[ThomasM125]

You need to indicate that you are "at risk" in the venture, which it sounds like you did. The deduction is phased out for income between $100,000 and $150,000, which it also sounds like you have. You also need to be active in the business. For the at risk and active participation qualifications, you need to answer questions about those things in the program, which I assume you have. I suggest you look at form 8582 which reports your passive losses before you file your tax return as that would show how your passive rental loss is being handled. 

If the loss is denied, you will carry that forward and you can use it in the year you dispose of the business. It will actually be deducted against ordinary income in that year, so it will not be added to the basis of the property, but you will get to deduct it in that year.

@Diane in MT