Hawaii Resident return, Miscellaneous Deductions Line 21f

Question

I am preparing a Hawaii resident individual return in Lacerte. The taxpayer has approximately 30 K-1s with investment management fees totaling $72,726.

The amounts are being entered on Lacerte Screen 20, Code 226 (Deductions Related to Portfolio Income), as Hawaii-sourced portfolio deductions.

Hawaii allows miscellaneous itemized deductions subject to the 2% AGI limitation, so I am trying to reconcile the Hawaii Schedule A/A-6 calculation. Lacerte does not provide any details.

I can reconcile Lacerte's miscellaneous itemized deduction calculation except for $1,008.

When I look at the Hawaii calculation, it appears that Lacerte is not picking up 100% of the K-1 investment management fees. The total entered is $72,726, but the Hawaii calculation appears to be $1,008 lower.

Has anyone encountered this with a Hawaii resident return? Is there a specific Lacerte input or Hawaii state adjustment required for K-1 deductions related to portfolio income?

I would especially appreciate hearing from anyone who has prepared a Hawaii resident return with multiple K-1 investment-management-fee deductions in Lacerte.

PhoebeRoberts · Answer

I know nothing about Hawaii, but I do know a lot about Lacerte and high volumes of K-1s and less-common state returns. Here’s what I’d suggest:

See if you can identify a specific K-1 or combinations of K-1s that total $1,008. Sometimes there’s something you can see if you’re looking just at one of them, like an amount coded as US rather than HI.
Basis and/or at-risk limitations? The K-1 reconciliation worksheets and/or state K-1 reconciliation worksheets are a place to start, but won’t have enough detail to make it easy.
Mark a K-1 with a checkmark in the “delete this year” field. See how your output changes. Sometimes this can identify a K-1 that’s confusing Lacerte. For a minor state issue, I would never delete a K-1 entirely and re-enter, because the odds of missing some carryover number are too high - but if I can confirm that there’s a K-1 Lacerte is handling inappropriately, I feel better about the override.
Plug to the Sch A input for misc 2%. I often will have a dummy K-1 that’s called something like “State adjustments” when I can’t come up with another workaround, but if this is your only issue, the Sch A input is probably where I’d dump it.

30 isn’t enough K-1s that I’d expect Lacerte to break, but this is an unusual enough situation that I would not assume that Lacerte is doing it correctly.

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