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You will be able to deduct the $78,177 for each of you against other forms of income but will be required to reflect as income on line 21 of your 1040 the other income shown on line 11f for each of you. This is a total loss of $176,354 and an income of $89,890 for a net loss of $86,464. The amounts shown line 1 of the K-1 get reported on Schedule E page 2 and from there transfer to the page 1 of the 1040.