Treatment of partnership passive losses at death

[John of Gischala]

A taxpayer has passive losses in a partnership and dies, the tax code says (469(g)) that the losses are recognized only in excess of the step up in basis. Losses to the extent of the step-up in basis are lost forever.

How do I input this in Lacerte?

[PhoebeRoberts]

Mark the activity as disposed, which will free up all the losses. Manually adjust the losses to the allowable amount.

[John of Gischala]

Thanks,

How do I adjust the losses? Do I manually reduce the amount of prior year unallowed losses and then also reduce the current year passive losses or is there an additional input for this?

[PhoebeRoberts · Accepted solution]

Adjust any combination of current losses and prior unallowed losses to get the right answer. You could alternatively make an entry into the Separately Stated Items section for the adjustment amount, if you wanted some additional documentation of what you'd done.

This is one of those situations where any input that gets the right output will work, and there's no specific input or even best practices guideline.

Don't forget to adjust the AMT amounts, too.