Understanding passive loss limitations for K-1 Losses in Lacerte

For more Schedule K-1 resources, check out our Tax topics page for Schedule K-1 where you'll find answers to the most commonly asked questions.

This article will help you understand passive loss limitations for K-1 losses and how Lacerte calculates allowable loss amounts.

What are passive loss limitations

The passive limitation is the third of three limitations applied to income-producing activities. The losses must apply in the order listed:

• Basis limit
• At-risk limit
• Passive limit

Generally, passive activities include the following.

• Trade or business activities in which you did not materially participate for the tax year.
• Rental activities, regardless of your participation.

How are passive loss limitations calculated?

The passive loss limits are computed on Form 8582. A passive loss limitation occurs when total losses (including prior year unallowed losses) from all your passive activities exceed the total income from all your passive activities.

Passive activity losses not allowed in the current year are carried forward until they’re allowed either against passive activity income; against the special allowance, if applicable; or when you sell or exchange your entire interest in the activity in a fully taxable transaction to an unrelated party.

How do I generate Form 8582 for passive loss limitations?

Follow these steps to calculate passive loss limitations for a K-1 activity:

1. Go to Screen 20, Passthrough K-1's.
2. Select the appropriate Partnership Information or S Corporation Information section from the left navigation.
3. Passthrough K-1s are assumed to be passive. Check the Not a passive activity box if this is not the case
4. Check the Actively participated in real estate box if applicable
5. Enter any carryover losses in the Prior Year Unallowed Passive Losses section

Lacerte will use your entries to generate the Form 8582 if applicable and the losses allowed will flow to Schedule E Page 2.