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Barbara
Barbara, Enrolled Agent
Category: Tax
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Experience:  Tax Preparer for 16 years; 25+ years experience as a real estate/corporate paralegal.
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2012 Schedule K1 (Form 1065) of a LLC shows a loss on Line

Resolved Question:

2012 Schedule K1 (Form 1065) of a LLC shows a loss on Line 1, ordinary business income (loss), Part III while showing a check mark on the box 'Limited Partner or other LLC memeber' on line G, Part 1. How should this be reported on Schedule E (Form 1040) of the domestic LLC member/taxpayer who received this K1? Is it considered a passive or non-passive loss?
Submitted: 10 months ago.
Category: Tax
Expert:  Barbara replied 10 months ago.

Welcome. My name is XXXXX XXXXX it will be my pleasure to assist you with your tax question today.

 

A passive activity is any business activity in which a person DID NOT materially participate and usually any rental activity. In most cases, if you are a limited partner, you are not treated as having materially participated in the partnership's activities for the year.

 

A full explanation as well as the IRS instructions for Schedule E can be found at the following:

 

http://www.irs.gov/pub/irs-pdf/i1040se.pdf

 

If you are still in doubt after reviewing the instructions, please come back to me here, and I will be happy to assist you further.

 

Thank you and best regards,

Barb

Customer: replied 10 months ago.

The thing is that the taxpayer did materially participate (spent more than 500 hours in the taxable year). So does that mean the income/loss is non-passive, instead of passive, even though the taxpayer has been marked as Limited Partner in K1.

Expert:  Barbara replied 10 months ago.

Hi, Shiv.

 

Thank you for your follow-up question.

 

You are correct. If the taxpayer did materially participate, the income/loss would be non-passive.

 

Thank you and best regards,

Barb

Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 999
Experience: Tax Preparer for 16 years; 25+ years experience as a real estate/corporate paralegal.
Barbara and 2 other Tax Specialists are ready to help you
Expert:  Barbara replied 10 months ago.

Hi, Shiv.

 

I see you are now offline. Please let me know if you require further information or clarification, and I will be happy to assist you.

 

Thank you and best regards,

Barb

Expert:  Barbara replied 10 months ago.

Hi, Shiv.

 

Thank you for your positive rating of my answer. It is most appreciated.

 

If you have any questions in the future, please feel free to put "for bkb1956 or Barb" in the subject line, and I will be happy to assist you.

 

Thanks again and best regards,

Barb

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