Passive Activity Loss Limitations

Forum|Forum|6 years ago
March 24, 2020
2 replies
18 views

Client has a rental loss of $10,000 (passive with active participation). They also have $120,000 of W-2 income and K-1 income of $40,000 from a consulting business (active general partner). Form 8582 Part II is not including the $40,000 of nonpassive K-1 income in line 7, Modified AGI. As a result, the rental loss is being allowed despite the fact that W-2 income plus nonpassive K-1 income exceeds $150,000. What am I missing?

Lacerte Tax

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George4Tacks

Level 15

My best guess is the Screen 18 > General Information > You input 1=nonpassive activity or something else in that section that is triggering it.

Is form 8582 being generated?

Answers are easy. Questions are hard!

W

WestfloridaAuthor

Level 2

Thank you for responding.

I checked and the nonpassive box in screen 18 is not checked. Form 8582 is being generated, but it allows the rental loss.

The K-1 input nonpassive box has been checked, and the K-1 income does show as nonpassive in the workpapers.

I had run the return a few days ago, and the rental loss was not allowed. Due to a computer problem, I had to reinput and rerun the return, with the result as described in my original post.

itonewbie

Level 15

Are you sure the $40k was not included in the MAGI? There's no provision for the K-1 income not to be included whether it is passive or not. You may like to double-check.

My hunch is that the loss was allowed because you did not check the box in the K-1 input that this is a "Not a passive activity", which causes the $40k to show up on Line 3a to offset your passive loss from rental.

---------------------------------------------------------------------------------Still an AllStar

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