Common questions about K-1 Calculations in Lacerte

Table of contents:

Rounding or Specially Allocated Net Income (Loss) Adjustment on the K-1 Rental Statement

A Rounding or Specially Allocated Net Income (Loss) Adjustment appears on the K-1 Rental Statement. What causes this rounding statement? And can this rounding amount be eliminated?

Partnership

The rounding amount generates when the rental income is specially allocated in Screen 29, Special Allocations. The statement shows what the partner would receive based on the percentages in Screen 8, Partner Percentages and the rounding amount brings the total to what's specially allocated.

To eliminate the rounding:

1. Go to Screen 32, K-1 Miscellaneous.
2. Click on the Partner from the left navigation panel.
3. Scroll down to the K-1 Statement Allocation Percentage subsection.
4. Enter the percentage from the Allocation % (memo only) column in Screen 29 into the field Rental real estate (xx.xxxx). Remove any amounts from Screen 39, CA Special Allocations (if applicable).
5. Repeat Steps 2-4 for each partner.

Example: A partnership with two partners who share equally in the partnership receives $100,000 worth of rental real estate income. In the Special Allocations Screen, $75,000 is allocated to Partner One and $25,000 allocated to Partner Two. Without the percentage entered in Screen 32, the K-1 rental statement will show the allocated income according to the partner percentage in Screen 8 (50,000), plus a "rounding" amount (25,000) to bring the total income for partner one to 75,000. Partner Two will show a rounding down by $25,000. When an entry is made in Screen 32, Intuit ProConnect Lacerte recalculates the statement to simply print 75,000 for Partner One and $25,000 for Partner Two.

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S-Corporate

The rounding amount generates when the rental real estate income is overridden in Screen 33, Schedule K-1 Overrides. The statement shows what the shareholder would receive based on the percentages in Screen 6, Stock Ownership and the rounding amount brings the total to what's overridden.

To eliminate the rounding:

1. Go to Screen 36, K-1 Miscellaneous.
2. Select the Shareholder form the left navigation panel.
3. Enter the percentage from Screen 33 into the field Rental schedule allocation percentage (xx.xxxx) [O].
4. Repeat Steps 2 and 3 for each shareholder.

Example: An S Corporation with two shareholders who have equal shares in the S Corporation receives $100,000 worth of rental real estate income. In Screen 33, $75,000 is entered for Shareholder One and $25,000 is entered for Shareholder Two. Without the percentage entered in Screen 36, the K-1 rental statement will show the allocated income according to the Shareholder Ownership percentages in Screen 6 (50,000), plus a "rounding" amount (25,000) to bring the total income for Shareholder One to 75,000. Shareholder Two will show a rounding down by $25,000. When an entry is made in Screen 36, the program recalculates the statement to simply print 75,000 for Shareholder One and $25,000 for Shareholder Two.

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Basis Limitation for Partnerships that receive K-1s from another Partnership.

From Form 1065 Instructions for Line 4 (2020, page 19): If there is a loss from another partnership, the amount of the loss that may be claimed is subject to the at-risk and basis limitations as appropriate.

Note: Partner capital accounts are not necessarily the same as basis. They are similar concepts, but basis is for tax purposes and tracks the individual's actual out-of-pocket investment. Partner capital accounts track the partner's imputed share of the partnership's total book capitalization.

Solution:

Lacerte only tracks Basis limitations in the Individual module. A partnership's basis in other partnerships must be tracked manually.

Each year, enter on Screen 23, Passthrough K-1's, only the amount of loss or deduction items allowable after basis and at-risk limitation are calculated manually.

Enter prior-year losses/deductions on Screen 23, in the same fields as current-year losses/deductions. Manually carry disallowed amounts forward for possible entry on next year's return.

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How do you allow passive losses from a dissolved partnership K-1?

To release prior unallowed passive losses in a Partnership that has been dissolved:

1. On the Detail tab, go to Passthrough K-1's, Screen 20.
2. Select the Partnership Information under the Passthrough K-1's section on the left panel.
3. Select the entity.
4. In Part I - Information About the Partnership, check the box Delete next year (final K-1, free prior unallowed passive losses) 

This will release any passive losses associated with the selected entity.

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1041 K-1 Line 12 Alternative Minimum Tax Adjustment (AMT)

From page 34 of the Form Instructions for the Form 1041 and Schedules A, B, G, J, and K-1:

(code A) Adjustment for minimum tax purposes:

To figure the adjustment, subtract the beneficiary's share of the income distribution deduction figured on Schedule B, line 15, from the beneficiary's share of the income distribution deduction on a minimum tax basis figured on Schedule I (Form 1041), line 44.  The difference is the beneficiary's share of the adjustment for minimum tax purposes.  NOTE:  Schedule B, line 15 equals the sum of all Schedule K-1's, box 1, 2a, 3, 4a, 5, 6, 7, and 8.

(codes B through D) AMT adjustment attributable to qualified dividends, net short-term capital gains, or net long-term capital gains:

If any part of the amount reported in box 12, code A, is attributable to qualified dividends (code B), net short-term capital gain (code C), or net long-term capital gain (code D), enter that part using the applicable code.

(codes E and F) AMT adjustment attributable to unrecaptured section 1250 gain or 28% rate gain: 

Enter the beneficiary's distributive share of any AMT adjustments to the unrecaptured section 1250 gain (code E) or 28% rate gain (code F), whichever is applicable, in box 12.

(codes G through I) Accelerated depreciation, depletion, and amortization: 

Enter any adjustments or tax preference items attributable to depreciation, depletion, or amortization that were directly apportioned to the beneficiary.  For property placed in service before 1987, report separately the accelerated depreciation of real and leased personal property.

(code J) Exclusion items: 

Enter the beneficiary's share of the adjustment for minimum tax purposes from Schedule K-1, box 12, code A, that is attributable to exclusion items (Schedule I (Form 1041), lines 2 through 6 and 8).

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Section 179 does not appear on the K-1

Section 179 expenses will flow to Form 4562, Part 1.  Any limitations are applied at the S-Corporation level as well as the shareholder level (See Pub 946 for more information).

Note: When Section 179 is fully limited by income at the entity level, it will not flow through to the K-1.  It will carry over to next year.  If the Section 179 is not limited, the entity does not take the deduction itself but instead passes it through to the shareholders.

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1120S K-1 Domestic Production Activity Wages Not Calculating

Lacerte is calculating the portion of Domestic Production Activity Gross Receipts on Schedule K-1, box 12, code Q, but it is not calculating the allocable wages despite entries for Officer Compensation, salaries and wagest related to Cost of Goods Sold, and Salaries and wages entered as a Deduction.  Why?

Solution:

Lacerte provides worksheets to show the calculation of Domestic Production Acticity related Gross Receipts and Wages.  They can be found in the Forms tab, within Worksheets, and are labeled Schedule K worksheets.  Verify the calculation for Wages.

If the Qualified Production Activities Income worksheet is present, but the Wages worksheet is not present, check the Diagnostics tab for the following Critical Diagnostic warning:

Wages allocable to DPGR for Domestic Production Activity purposes have not been computed because the portion of W-2 wages for the calendar year ending within the taxable year that are allocable to domestic production gross receipts must be entered in "Wages allocable to DPGR" (Screen 15, code 62).  Refer to Rev. Proc. 2006-47 and Reg. Sec. 1.199-2T for more details on computeing W-2 wages for Qualified Domestic Production Activities. (ref. #11454)

This diagnostic generates when Fiscal year dates are entered in Screen 3.1, Miscellaneous Info.

• If the return is for a calendar year, remove the dates from Screen 3.1.  The program automatically suspends calculation of domestic production activity wages when those fields have entries.
• If the return is for a fiscal or short year, an entry must be made in the Wages allocable to DPGR [O] in Screen 15, Deductions.  The field is located in the Qualified Domestic Production Activity section.

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Ending Capital Percentage on Partnership K-1 Box J doesn't match Screen 8 Partner Percentages

Why does my Partner's Share of Capital percentage on my Partnership Schedule K-1 Line J not match the Screen 8, Partner Percentages input?

The partner's share of ending capital percentage is populated one of two ways.

1. The Manual setting:  takes the percentage entered in Screen 8, Partner Percentages and prints it on the Ending Percentages line.
2. The Automatic setting:  takes into account all the specially allocated Income and prints the actual Percentage of Ownership based on what is being distributed to the partner.

The Calculation Method can be made globally by performing the following steps:

1. Click the drop-down labeled Settings
2. Click the selection labeled Options
3. Select the tab labeled Tax Return 
4. Select the option labeled Federal Tax Options from the left navigation panel
5. Change the drop-down field labeled Partners Ownership of Capital to one of the choices listed below:

Select Manual to Print the end of the year percentage entered on Screen 8, Partner Percentages for each partner's ownership of capital on Schedule K-1 and the partners' allocation percentages. Override: "Partners' Ownership of Capital: 1=Manual, 2=Automatic [O]" (Screen 3, code 31)

Select Automatic to Calculate and print the percentage of each partner's ownership of capital for the end of the year based on the current year's transactions.

The Calculation Method can also be set on a Per Return basis by:

1. Navigating to Screen 3 - Miscellaneous Information
2. Scroll down to the User Option Overrides
3. Enter on the line Partner's Ownership of Capital either a 1 for Manual, 2 for Automatic

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How to Enter Percentages Per Shareholder in Box F of S-Corporation Schedule K-1

How do I enter percentages into Box F of Schedule K-1 for either one or all shareholders?

By default, Lacerte populates box F with the shareholder's percentage calculated from the number of shares entered in screen 6. To override Box F for a shareholder:

1. Navigate to Screen 36, Schedule K-1 Misc. / Schedule B-1.
2. Select the shareholder you'd like to override in the Shareholder list in the top left corner.
3. Enter the desired percentage into the field Shareholder's ownership percentage (xxx.xxxxxx) (Box F of K-1 only) [O].

Note: This override field will only affect the print on Schedule K-1. It will not change the Shareholder's calculated allocation percentage.

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