1040-X K-1 losses suspended

[Nat Hussey]

I'm entering a late K-1 and Box 1 losses are being suspended while box 5, 6a, 8 and 9a figures for interest, dividends and s/l capital gains are resulting in increased income. This seems off. Thank you!

[Jim-from-Ohio]

Interest income, dividend income, and capital gains are not impacted by a suspensed loss from Box 1.  sounds like the program is handling it correctly. 

[dkh]

If applicable - Have you checked the Materially participated in business activities box for Line 1  ?    

Also guessing you have Basis Statement that would allow the loss to be deducted.....

[Nat Hussey]

Client has a substantial positive capital account balance per K-1.

[Nat Hussey]

Thank you Jim from Ohio. My expectation was that since the client has a substantial positive capital account, the loss would offset income items. (?)

[Jim-from-Ohio]

why do you think the loss from Box 1 is suspended?

[Nat Hussey]

I must be comparing apples to oranges - my assumption was passive losses and income on the same K-1 would offset, but the box 1 loss is showing as suspended due to 6198 which I don't understand because all investment is at risk. 

[Jim-from-Ohio]

I think there are two issues. 1. Interest, dividend, and capital gain income are still taxable even if there are suspended losses. 2. As far as why the loss is suspended, that one I am not sure why if he has basis.. is the materially involved box on the K-1 input checked?

[sjrcpa]

If Line 1 is passive it won't be allowed unless there is other passive income on the return.

[Nat Hussey]

He has substantial basis in the partnership - many times the loss amount- but it's an investment, so he does not materially participate in the enterprise. Thank you for staying with me on this. 

[Nat Hussey]

That was my belief as well. The client has substantial net positive passive income. 

[PATAX]

@sjrcpa is exactly correct. I just had this with the client and an out-of-state K1. There was a loss but it was not deductible.

[Nat Hussey]

Was that the case even though the client had other passive income? My client has plenty of other passive income and I had expected passive offsets passive. Thank you!

[PATAX]

@Nat Hussey my client had no other passive income.