Where do I enter 1065 K-1 163 interest deduction

[JeffR]

I have a Form 1065 K-1 with an amount on Line 13 coded W.  The instructions say "Interest Expense & Loan Cost Amortization attributable to refinance proceeds distributed subject to the tracing rules of Reg Sec 1.163-8T.  How does this get input?

[PhoebeRoberts]

You use the tracing rules to figure out if and where it's deductible. Then make any entries that give you that result. The common answers are nondeductible expense and Schedule A investment interest, but it might be properly traceable to some other activity.

If you Google "interest on debt financed distributions" you'll probably get some plain English explanations.

[JeffR]

Thank you PhoebeRoberts.  It's interest on debt used to finance distributions to partners.  According to the K-1 instructions, it should go on Schedule E, page 2, labeled with the partnership name and "interest expense."  It's shown separately because it was traced in accordance with sec. 1.163.

[sjrcpa]

You're misinterpreting what it says.

What did your client do with the distribution they received? The interest expense is traced to that.

[JeffR]

So, if he invested the funds, it would be investment interest?  Sounds like it might have to be changed every year.

[sjrcpa]

Yes if he invested it, the interest is investment interest.

It won't change next year. The money was invested already.

[JeffR]

Got it!  Thank you!

[sjrcpa]

You're welcome

[hpostal]

Where is allocated Schedule E K-1's investment Interest Expense carryover from prior year (2021) input in Proconnect Pass-through K-1's?  Unlike allocated passive loss carryforward losses, there is not a provision for the input of 2021 individually allocated disallowed K-1 investment interest carryforward within carryovers for pass-through entities.

In past years, my previous tax software Prosystem Axcess online allocated disallowed investment interest expense to each applicable entity similarly to how passive loss carryovers were allocated.

Proconnect does not appear to offer that option or requirement to allocate "Pari passu" as are passive losses on form 8582.