Schedule K-1

[Chowdahead]

I don't handle many of these honestly so I'm a bit rusty.  I probably haven't see one in 5 years.  I know it gets reported on the 1040.  I have a pretty simple return.  Client  is single, and made $8000 in earnings, but has a Schedule K-1 issued to him.  

 

Box 1 Ordinary Interest Income he is showing a loss of $2,755.  

 

Box J shows 25% profit share.

 

Box 14 shows A ($2755) & C $2,650.

 

Does this $2,755 loss come right off oh his $8,000 in income?  Not that it is going to matter, but I want to make sure it gets reported right.

 

Any help would be much appreciated.

[rfassett]

Are you using ATX?  If so, there is a worksheet for the K-1 info.  But your question is more complicated than it appears on the surface.  He can only deduct that loss if he has basis.  You do not know that by looking at the K-1.  You will need to determine that separately.

[Elrod]

Chowdahead..............see

http://www.irs.gov/pub/irs-pdf/i1065sk1.pdf

[Terry D EA]

Ron is correct, loss can only be deducted for the amount of basis.

[Abby Normal]

Whoever prepared the K1 should have given you a basis worksheet. Ask your client to get it. If not available, you need to reconstruct basis from the beginning of the investment. If basis is unknown, assume it's zero and move forward but add the basis form in ATX and check the box to calc basis on the K1 input screen.

[rfassett]

As a 1065 K-1, there is a good chance that there is an inside basis different from the outside basis.  The preparer of the 1065 would likely not be privy to the outside basis.  In my unbiased professional opinion, having worked in this industry since 1984, there is no more complicated area of taxation than the partnership and K-1 area.  I have several partnership clients - but if it were my choice they would all be corporations.  At least I have a fighting chance in that arena.  But there is always room for a good partnership.  Keeps us on our toes.