K-1 grouping election (with self rental) on 1040 in Proseries

[tmccpa]

I have a client with two K-1s. One is for a dental practice (with income) and the other is for rental property  (with a loss) that dental practice operates out of. Entities meet the requirements to be grouped. I am needing input on how to make the rental property loss show as non-passive. I have info for 6198 at risk showing loss is deductible. Have checkboxes showing material participation and rental is a trade/business checked. But rental is still showing as passive on Schedule E.

Any suggestions??

[TaxGuyBill]

Is this on page one of Schedule E on a 1040?

If so, there is a checkbox for "other passive exceptions" (I think it is "G"  or "H").

[tmccpa]

No, it is on Sch E pg 2. Don't have Sch E pg 1 since rental activity is being reported on a 1065 K-1. It should be grouped with another 1065 K-1 (dental office). On the K-1 entry of 6198 at risk info it shows as deductible but on Sch E pg 2 it is showing passive and not deductible.

[TaxGuyBill]

Sorry, I missed the part about the second K-1.

I don't remember if there are any 'proper' ways to do it, but here are a potential couple of work-arounds:

1. If there are no passive activities on the 1040, you could check the Real Estate Professional box on the information worksheet to make the rental non-passive.
2. I think checking the "recharacterize" box on the rental K-1 (right by Box 3 where you entered the rental income/loss) would do it.  However, if I remember correctly you need to be careful with that because in some cases it doesn't quite do it (I don't remember the specifics though).

[tmccpa]

I have tried both those options with no success. It appears the program is treating it as the $25,000 annual limit on losses but isn't allowing any because of the taxpayers income being so high.

[JRC]

Exactly how I would see this unless they qualify as a Real Estate Professional making the income Non-Passive.

[tmccpa]

It is non-passive because it is a self-rental to the business he operates and has a grouping election made to group the business llc and rental llc as an economic unit.

[TaxGuyBill]

You have BOTH the Material Participate box checked next to Box 2 of the K-1 AND you have the Real Estate Professional box checked on the information worksheet?  That should make the program treat it as non-passive.

[tmccpa]

That did it. I really appreciate your help and patience! Have a great day!