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Category: Tax
Satisfied Customers: 12690
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have a client that receives 2 x Schedule K-1’s (Form

Customer Question

I have a client that receives 2 x Schedule K-1’s (Form 1120S) – one is a manufacturing company that can claim the Domestic Production Activities Deduction (DPAD) and one is for a business rental property. My client also has a residential rental property reported on Schedule E.
I have read, “Because taxpayers are required to compute DPAD on an aggregate basis for all of their activities, passthrough entities cannot assume they do not need to compute DPAD in a loss year.” (
The Form 8903 Instructions say: “Under the small business simplified overall method, your total cost of goods sold and other deductions, expenses, and losses are ratably apportioned between DPGR and non-DPGR based on relative gross receipts.”
Does this mean I have to consider both K-1’s and the Schedule E when calculating the DPAD, or do I just use the information from the one K-1 from the manufacturing company?
JA: The expert will know how to help. Is there anything else important you think the expert should know?
Customer: No
Submitted: 2 months ago.
Category: Tax
Expert:  Lane replied 2 months ago.

Hi. My name's Lane.


Is the business rental reported as passive activity?

Customer: replied 2 months ago.
Expert:  Lane replied 2 months ago.

Then you'll only use the K-1 from the manufacturing activity.


Actually, just looked up the eligible activities, and Rental income from real property is ineligible for the deduction, regardless of material participation, so passive vs active for rental activity is irrelevant.


Rental income from real property is also not considered as either DPGR or non-DPGR, for the same reason.

Customer: replied 2 months ago.
Just for other future clients, would you I included a second K-1 or maybe a Schedule C in the calculation if it was a retail business - again, something that would not be eligible for the DPAD.
Expert:  Lane replied 2 months ago.

Schedule C, (as long as it qualifies, as you said) yes.


And on the K-1, yes, if it's self employment income.