K1 income and rental income

[Pacun]

Client owns a house and rents out the basement. Rent income is less than expenses and depreciation and it becomes a loss. Client also has a K-1 from a partnership where she woks. Prior preparer (CPA) did not file sch SE because rent losses were $4,000 and K-1 showed $4,200 on guaranteed payments for worked done as partnership member. Should I amend?

This year guaranteed payments are $5,000 and rent losses are $6,000, I understand that I should not report $1,000 in losses because he lives in the house. Do I override 1040 to avoid the losses being transferred or is there a check mark that I can do on Sch E or somewhere?

This is not a Real Estate partnership as stated by mistake on the title.

[indyscott]

The partnership guaranteed payments are self employment income and subject to SE tax regardless of any rental activity the taxpayer's involved in. Also, her distributive share of partnership income or loss is ordinary income, and subject to SE tax.

The rental activity is a separate activity, and I'm not sure what your thought is about whether the taxpayer lives in part of the house. Seems like renting the basement, is no different than renting 1/2 a duplex and living in the other half, or renting a free standing separate house. It's just a rental property, no?

[Pacun]

The partnership guaranteed payments are self employment income and subject to SE tax regardless of any rental activity the taxpayer's involved in. Also, her distributive share of partnership income or loss is ordinary income, and subject to SE tax.

The rental activity is a separate activity, and I'm not sure what your thought is about whether the taxpayer lives in part of the house. Seems like renting the basement, is no different than renting 1/2 a duplex and living in the other half, or renting a free standing separate house. It's just a rental property, no?

Thank you for your reply.

Someone said on this board that if you rent part of your house, rental losses are not allowed on line 17.

[jainen]

>>if you rent part of your house, rental losses are not allowed on line 17<<

It depends on how it's set up. If you rent a room with kitchen privileges, losses are probably limited. But if the basement is a separate apartment, it's a Schedule E activity in the ordinary way. In neither case is it self-employment income/loss that can offset the partnership earnings, unless you have a red light over the door and rent it by the hour.