The interest expense was entered on 4952 along with income from the related capital gains and dividends. The expense properly flows to p1 of 1041. However, on the K-1 the expense is reflected as netted against net rental real estate income instead of against net short term capital gain.
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I am trying to have the interest expense allocate only to column (d) capital gains, which is what the interest expense is related to .
I contacted support, but they were stumped (after an hour and a half!), and told me to override, which means I would have to override the K-1 amounts as well. I would like to avoid that if possible.
Could you clarify what you meant? How is investment interest offsetting rental real estate income? And how would you like it to offset capital gains?
If you're referring to F.4952, rental income subject to PAL is generally not considered net investment income. Capital gains are not either because you can't use an income that's taxed at a lower rate to allow an expense that would reduce an income at marginal rate, unless an election is made to forego the preferential treatment. In fact, PTO would optimize that for you and even give you a suggestive diagnostic.
All of these happen on F.4952 and Sch A, so there is no offset against the rental real estate income or capital gains per se.
Still an AllStar