1065 Line 13L-Deduction Portfolio (Other)

[dclacertecommunity]

Entering K-1 input on individual module Line 13L-Deduction Portfolio (Other) ends up showing up on Schedule A Line 16.  Now that it's not deductible shouldn't that be excluded and reduce basis in the basis limitation worksheet at the same time.  If it's not entered (which is the only way to exclude from going to Schedule A) it must be manually entered as Other current year decreases to basis in that section.  Would think this would be automatic.  Are we missing something here?

[JimmyM · Accepted solution]

Amounts coded with an "L" on the Partnership K-1, line 13 are deductible on line 16 of Schedule A. These porfolio deductions are not subject to the 2% floor. In prior years, amounts subject to the 2% floor on line 13 of Sch K-1 would have been coded with a "K". This code has been deleted. Thus, you should not need to make additional entries as other current year decreases.

[dclacertecommunity]

Ok thanks!  I take it then that when we receive a K-1 from an outside source and it has "L" then it is go to go as a Schedule A deduction and that the decision was made on that Partnership level that it was deductible even though it says Deduction Portfolio.  In the one case we saw thus far we knew it was actually Investment Management Fees (cause actually we did the partnership return) and shouldn't have put it on the K-1 as code "L" but rather as a nondeductible expense.  Concur?  Learning as we go, ugh! 🙂  

[JkG]

I wish they hadn't taken away "K" on line 13 for other portfolio deductions subject to the 2% floor because although they are not deductible for federal, they still may be deductible for state and they impact the calculation of basis.  Now I have to input these expenses in the non-deductible section.  Most partnerships are not reporting it that way.

[TS]

FWIW - KPMG has been reporting amounts that in prior years were reported on 13K as Portfolio Deductions on 13W Other Deductions in 2018.  They prepare 8 different 1065s for different entities that I work with.

[gmcmichaelcpa]

This is not correct. The portfolio deductions are not deductible on Schedule A. They need to be entered as box 18c non-deductible expenses in order to avoid taking erroneous deductions while also making sure there is a basis reduction.

[R Taylor]

Does anyone know what types of expenses would "properly" be coded to 1065 K-1, Box 13, Code "L"?  I am trying to figure out what these would actually be, if not miscoded 2% investment expenses.  

[Steve W CPA]

Portfolio expenses that were formerly subject to the 2% rule should NOT be shown as nondeductible expenses on 18 C.  They should be on Line 13, Code W.  In ProSeries, and probably in some other programs, the preparer can then go thru a list to indicate what type of Code W expense it is.  This allows the program to deduct the expense in those states which still allow it.  If one codes a Line 13 expense as Code L, this is limited to certain misc. exps. that never were subject to the 2% such as amortizable premiums on taxable bonds, casualty/theft losses from income-producing property, and federal estate taxes on income in respect of a decedent.  However, investment exps., employee exps., etc. are under 13 W.

[Steve W CPA]

Portfolio expenses that were formerly subject to the 2% rule should NOT be shown as nondeductible expenses on 18 C.  They should be on Line 13, Code W.  In ProSeries, and probably in some other programs, the preparer can then go thru a list to indicate what type of Code W expense it is.  This allows the program to deduct the expense in those states which still allow it. 

[Steve W CPA]

If one codes a Line 13 expense as Code L, this is limited to certain misc. exps. that never were subject to the 2% such as amortizable premiums on taxable bonds, casualty/theft losses from income-producing property, and federal estate taxes on income in respect of a decedent.  However, investment exps., employee exps., etc. are under 13 W.

[BCPA90]

2021 1065 Instructions (pg38/59)

Other deductions (code W).
....However, do not enter expenses related to portfolio income or investment interest expense reported on line 13b of Schedule K on this line.

.....

(pg39/59)

Deductions—portfolio (formerly deductible by individuals under section 67 subject to the 2% AGI floor). For partners other than individuals, amounts that are clearly and directly allocable to portfolio income (other than investment interest expense and section 212 expenses from a REMIC) can be deducted on those partners’ income tax returns