Netting of REIT Dividends with PTP losses in calculating QBI

[Ron P]

Last year the program netted REIT dividends with PTP losses.  The input format was a little different and there was no form 8995.  The worksheet in the 2018 program showed the netting.  I have two instances this year where I have REIT dividends and PTP losses.  The program ignores the loss and gives me 20% of the REIT dividend.  That is inconsistent with last year's treatment.  In both years the PTP was a suspended loss.  Either I am inputting it incorrectly or Lacerte is not calculating it correctly.  Has anyone run into this problem or have an idea about this?

I have the following site which shows how it is to be treated:

"If a taxpayer also invests in publicly traded partnerships, their REIT dividends must be netted with their income/loss from those PTPs first. Once the income is netted, the 20 percent QBI deduction is calculated. For example, if you have the same $10,000 in REIT dividends, but you also invest in PTPs that have combined net losses of $5,000 for the year, you must net those losses against the REIT dividends, then calculate the 20 percent deduction. Your net income from REITs and PTPs is $5,000, so your QBI deduction is $1,000."

[PhoebeRoberts · Accepted solution]

Lacerte did it wrong last year up until about the first week in October. You had to know that the program was wrong, only enter the allowed PTP QBI losses, and then after proformaing enter the carried forward PTP QBI losses into the 2019 program.

You could look at amending 2018, but it might not be economical. Given the penalties for screwing up QBI, you might want to adjust your carry forward to the correct amount regardless.

[Ron P]

Thanks for the response.  Further research on my part confirms your position.  Reg. Section 1.199A-3(b) (1) (iii) cites the following: "For example, if an individual owns an interest in a PTP, and for the taxable year is allocated a distributive share of net loss which is disallowed under the passive activity rules of section 469, such loss is not taken into account for purposes of section 199A."  Not the way it was handled in Lacerte last year.  Appears they got it right this year.  Will deal with amendments as warranted.

[cpamom78209]

I agree with the conclusion that if the PTP loss is suspended the related PTP 199A loss would be suspended.  However, I have a final PTP K1 in which the loss is now fully allowed.  Lacerte worksheet for QBI shows "loss disallowed due to basis, at risk, or passive rules:".  The K1 is marked final and Sch E is claiming the losses.  Is there some additional input required in order to release the QBI loss also?

[Ron P]

Interesting.  I didn't have any PTP sales this year.  However, I entered a PTP sale in one of my clients account that had a prior QBI loss to see what would happen.  It correctly picked it up on line 7 of Form 8995, which offset the current REIT income and PTP loss on line 6. Do you have an entry in the Prior Unallowed Qualified Business Income and Deductions section?  This section is below the Prior Year Unallowed Passive Losses Section.  

[cpamom78209]

Hi and Thanks!  This particular K1 did not have any prior year QBI losses so there is nothing in the carryforward, it's just the current year loss on the final K1 that is getting held up.

[Ron P]

Enter the current year loss in Section 20 Sec 199A area of the K-1.   Indicate that it is a PTP and enter the loss.  That should work.