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February 17, 2023
Question

Make Turbo Tax treat Rental Income on K-1 Line 2 as Non-passive on 1040 instead of passive

  • February 17, 2023
  • 1 reply
  • 0 views

My wife and I have a Short Term rental in a LLC.  I've already verified that the rental income can be treated as non-passive and meets ALL of the rules and conditions to do so.  I'm 100% confident in this and have the complete documentation to back it up.  The income is reported as rental income on our K-1's.

 

However, I need Turbo Tax to treat it as non-passive.  Instead, when filling out the questionnaire for our 1040, it doesn't allow me to treat it that way.  Tax Cut has a option that allows you to specify it.  My CPA advisors have the same ability but want to charge me $1200 to do my taxes.

 

I have spoken to customer support at QuickBooks weeks ago and they were very nice and agreed with me but at the end of the call they didn't know how to do it and told me that I needed to hire a CPA to file my taxes  because Quick Books didn't appear to have a way.  I'm not ready to give up on Turbo Tax yet so I'm begging for help.

 

Is there a way in Turbo Tax to indicate that the income from the K-1 Line 2 (Rental Income) be treated as non-passive instead of the traditional treatment of passive?  How can I override this default setting?

 

Please help. 

Thank you

 

 

    1 reply

    February 18, 2023

    If that is your only rental and you don't have any passive activates on your tax return, a work-around would be to indicate that you are a Real Estate Professional.

    BearlyAuthor
    February 25, 2023

    Thank you for your reply.  I was away for work and just got free to try what you suggest.  Unfortunately, when doing the interview process with Turbo Tax Online it doesn't ask me about being a real estate professional.  I'm wondering if I have to indicate that somewhere else.  To help everyone better understand I documented the steps in the interview process to help explain what I'm seeing.  This is for the Online version of Turbo Tax if that makes a difference.  I apologize in advance for the long post

     

    Wife and I are filing together and we both have our own K-1's.  We only have 1 property in the LLC and this is our only property and LLC.

     

    Steps  in interview

    1. Added K-1 for Rental Activity
    2. Selected that the K-1 was for me and not my wife
    3. Indicated I was General Partner
    4. Indicated I was a Domestic Partner
    5. Indicated my ownership was 50% (wife has her own K-1,  same as mine)
    6. Entered my liability share
    7. Entered the Capital Account Information
    8. Indicated that K-1 was for Rental Activity -Box 2
    9. Indicated that I actively participated
    10. Indicated no special handling of Rental Activities
    11. Input the Rental Real Estate Loss in Box 2
    12. Input that Boxes 19 and 20 had Amounts
    13. Input the amount from Box 19 (Other property) which was very small
    14. Input the amount from Box 20 (Business interest expense) which was very small
    15. Input the amount from Box 20 (Section 199A) which happens to equal Line 2 amount and very large
    16. Described the partnership - all my investment is at risk, I pay for expenses in which I'm not reimbursed
    17. Entered my unreimbursed expenses (car mileage basically)
    18. Indicated no personal asset information used for business
    19. Indicated no Section 179 carryover
    20. Indicated no transportation, travel or meals expenses paid
    21. Indicated no gifts, education or publications expenses paid
    22. Indicated miscellaneous supplemental expenses for a portion of cell phone bill for me
    23. Indicated no personal expenses reimbursed
    24. Indicated all Section 199A income comes from partnership for K-1
    25. Added in all the Section 199A income, which was basically the Line 2 rental income/loss
    26. Indicated No uncommon adjustments
    27. Indicated my income will not exceed $329,800 so additional info needed

    - That's it - nothing more

     

    I didn't see the query asking about being a real estate professional.

     

    I wonder what I'm missing.  Is the problem with the Online version?  Again, any help would be appreciated.

    Thanks in advance.

    Blake

    February 25, 2023

    I suspect that if you go into the rental section of the program (like you would report a rental that is individually owned, rather than owned by a Partnership), one of the introductory questions should ask you about it.