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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
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Experience:  10 years experience
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I 't understand how to report a business loss (Schedule K-1,

Customer Question

I don't understand how to report a business loss (Schedule K-1, form 1065) on my 1040 line 17 when the loss is greater than the amount necessary to reduce my tax liabilities to zero. I don't think I have a NOL (my AGI is still positive) but I am only effectively using a portion of my line 17 loss.
Submitted: 1 year ago.
Category: Tax
Expert:  emc011075 replied 1 year ago.

Hi. My name is ***** ***** I will be happy to help you.

It is not unusual to have negative taxable income. As you correctly assumed as long as your total income and AGI is a positive number, you do not have NOL. Unfortunately you cannot carryover the loss to future years just because your income is not high enough to absorb the loss in addition to standard deduction and exemption. You have to claim it in the current year, even if you cannot fully utilize it. The same rule will apply to capital loses or credits.

Customer: replied 1 year ago.

Are losses from partnerships like mortgage interest deductions in that it doesn't matter who claims the losses, as long as they aren't claimed more than once?

In other words, can I give back some of my loss to one of my partners, who might be able to more fully utilize it, as long as I claim the reduced portion?

Expert:  emc011075 replied 1 year ago.

No, you cannot just "give" the losses to somebody who can utilize them. Same as mortgage interest deduction, it can only be claimed by somebody who made the mortgage payment, owned the property and was liable for the loan. It is not true that it doesn't matter who claims the deduction as long as only one person claims it.

Expert:  emc011075 replied 1 year ago.

Generally, only the person who received 1098 can claim mortgage interest deduction and only the person who received K1 can claim the partnership losses. To reallocate the losses you would have to redraft your partnership agreement and redo your K1s and 1065.

Customer: replied 1 year ago.

My understanding is that if 2 people co-own a mortgage loan and make shared payments on it (say 50/50 split), one of those people can claim 100% of the interest deduction, as long as the other person claims 0% (or any combination).

This seems fairly similar to the partnership loss. Yes the K-1 shows the loss allocation, but only in terms of allocation 100% of the losses among the partners as per the partnership agreement. One would suppose that those losses could be allocated in any way the partners decide (again, assuming no more than 100% of total losses are claimed and reported).

Expert:  emc011075 replied 1 year ago.

If two people co-own a mortgage loan, than yes, any of this two can claim the interest. But nobody else. Both individuals are responsible for the loan and the payments. So any of them can claim the deduction.

It is not the same with a partnership. In partnership, each partner is responsible for its own share of partnership interest.

The only way to reallocate the loss would be to redraft your partnership agreement, amend your 1065 and issue corrected k1s.