K1 where to check to make it NON passive.

[shf1957]

I need to make the k1 NON passive.. but it is showing up on the sch E as passive... how do I switch this?

[IRonMaN]

There are some boxes to check towards the top of the K-1 worksheet.

[shf1957]

Honestly, I can not see that on the  computer program.. when entering a k1  first lines are for name and FIN  etc.. then there is the boxes for..public trade..  then general partner etc..  next to income is boxes stating .. stuff.. the only figure on this k1 is  rental loss....    where else would it be...  I see on  a copy of last years.. from another busn it falls under non passive... mine keeps going to passive..

[Just-Lisa-Now-]

Active participation? material participation?  why is it non passive?

[TaxGuyBill · Accepted solution]

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@shf1957 wrote:

the only figure on this k1 is  rental loss

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Rentals are passive unless the person is a Real Estate Professional (and materially participates in that rental).  It the taxpayer a Real Estate Professional?

[Abhay Bhargava]

Did you get answer to your question.  I have same issue.  I did check material participation, active participation but it still shows passive.  All investments at risk also checked.  Also check trade or business.

[suzanner]

Did you ever get a answer or a fix for your question  I am dealing with the same issue

[Abhay Bhargava]

Yes - In the Federal Info worksheet in Part X - there is question about RE professional.  Check that box - however one must read rules of what qualifications one must meet to be RE professional.

Hope this helps!!

Abhay Bhargava, CPA

[suzanner]

Thank you so much

[Michael Plaks]

This frustrating issue still exists in 2021 software and is driving me up the wall. NO, this is NOT about RE Professional. There're other situations where a K-1 loss from Box 2 can be NON-passive and which has nothing to do with REPS. Specifically, short-term rentals with material participation.

If such property is on Sch E, we have the "other passive exceptions" checkbox to force it into non-passive treatment. K-1 however does not offer a similar option, and apparently there's no way to force the non-passive treatment on such Box 2 losses. This is a deficiency of ProSeries. You can do it in UltraTax, for example. And again - it's not about REPS.

[Michael Plaks]

Incorrect. REPS is one of the situations when rental losses are non-passive but not the only one. Short-term rentals with material participation is another situation, and ProSeries maddeningly does not allow the correct treatment. It does with Sch E but not with K-1s.

[TaxGuyBill]

I would need to double check if there were any unwanted side effects, but I think you need to check the Recharacterization box next to line 2 of the K-1.

If there isn't any passive income on the return, checking the Real Estate Professional box would treat it as Nonpassive.

[Michael Plaks]

No and no.

1. REPS serves a specific purpose, this is not merely some innocent checkbox. It changes the tax treatment of ALL rental activities with material participation, and the taxpayer must qualify for it. What I need is to change ONE activity, not all of them, to non-passive, and for a person who does NOT qualify for REPS. ProSeries makes it possible when such an activity is reported on Sch E but not when it's within a partnership and the loss is passed via K-1 Box 2.

2. Similarly, "subject to recharacterization" is not just some innocent checkbox. It also has a specific purpose (land and self-rentals), and ironically forces the behavior opposite to what we need, even if it was applicable which it isn't. It forces losses to be passive, while I need them to be non-passive.

ProSeries missed the mark on this one, apparently. Other tax software, such as UltraTax, does allow the preparer to choose passive v. non-passive treatment for K-1 activities. ProSeries does not.

[Terry53029]

The IRS considers short term rentals (under 7 days) as not being a rental activity. Maybe the issuer of the K1 should not be reporting it as a rental on the K1 line 2, but on line 1.

[TaxGuyBill]

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@Terry53029 wrote:

The IRS considers short term rentals (under 7 days) as not being a rental activity. Maybe the issuer of the K1 should not be reporting it as a rental on the K1 line 2, but on line 1.

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No, it is still a rental for most things.  It is only considered as not a rental for purposes of Passive Losses.

EDIT:  On the other hand, the Instructions do make how to report it on the K-1 a bit questionable.

[TaxGuyBill]

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@Michael Plaks wrote:

No and no.

1. REPS serves a specific purpose, this is not merely some innocent checkbox. It changes the tax treatment of ALL rental activities with material participation, and the taxpayer must qualify for it. What I need is to change ONE activity, not all of them, to non-passive, and for a person who does NOT qualify for REPS. ProSeries makes it possible when such an activity is reported on Sch E but not when it's within a partnership and the loss is passed via K-1 Box 2.

ProSeries missed the mark on this one, apparently.

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As I said before, I suggested the Real Estate Professional if there were not passive activities.  You apparently didn't read that.

Can't you just enter the amount in Box 1 of the worksheet?  Wouldn't that treat it as nonpassive and put it on the proper spot on Schedule E?

ProSeries misses the mark on MANY things.  You must be new to Intuit. 

[Terry53029]

Thanks @TaxGuyBill, but If you are not a real estate professional the only way to change the income/loss reported on line 2 of the K1 as non-passive is to override the schedule E page 2. I have a couple of clients that have short term rentals, and I fill out schedule C for them (they do have to pay se tax) which is why I suggested the issuer could put the loss on line 1

[TaxGuyBill]

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@Terry53029 wrote:

 the only way to change the income/loss reported on line 2 of the K1 as non-passive is to override the schedule E page 2.

I have a couple of clients that have short term rentals, and I fill out schedule C for them (they do have to pay se tax) which is why I suggested the issuer could put the loss on line 1

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I agree, you should be able to ENTER it in Box 1 to make ProSeries do it correctly.  But because it is still a rental for other purposes, in my opinion the preparer correctly put it in Box 2 (although as I said before, the Instructions make that questionable).

Are "services" provided to the tenants?  If not, it should be on Schedule E, not Schedule C.

[Terry53029]

Yes Bill, services are provided

[Michael Plaks]

Bill's description is correct: AirBnBs are still rentals except for PAL purposes and should be reported on Sch E or 8825/Box 2.

Terry, you may be misunderstanding those "significant personal services" which need to be hotel-like, i.e. daily change of linens, preparing meals for the guests and so on. AirBnBs do not normally do that. Even if your property does indeed provide those special services, my problem is with the regular STRs that do not offer such services.

[Michael Plaks]

Unfortunately, not new to ProSeries - over 20 years of grumpiness. 🙂  I tried to move away couple times but ran into numerous conversion headaches, as my returns are fairly complex. Intuit, however, keeps adding to my frustrations every year.

[Terry53029]

Quit fighting it and just override schedule E page two

[frankorlando]

if you check the box on K1 input "rental property is a type subject to recharacterization rules" it changes from passive to non passive.