Client is a partnership who received other partnership K-1 and how to report losses

[mickey]

I have a new client who is a partnership.  Let's call this one XYZ LLC with 2 partners (who is a husband/wife duo).

XYZ received 5 K-1s from other partnership.  All K-1s had rental losses.  

1.  Questions - if my2 clients materially participated in these real estate ventures with XYZ LLC, I understand they can offset all of the losses from XYZ against their other ordinary income.  Is this correct?  They have to meet the 750 hours qualification, correct?

2.  If the 2 partners actively participated in ZYZ LLC, where do you mark on the XYZ partnership return to indicate that they actively participated?  Or will the personal returns of the husband/wife assign the $25000 passive loss limitation somehow?

They do have basis for all properties.

Thanks!!

[mickey]

Where to find the basis statement for each partner on the form 1065 returns?

[Terry53029]

Do your clients qualified as Real Estate Professionals. 

• To be a real estate professional, a taxpayer must provide more than one-half of his or her total personal services in real property trades or businesses in which he or she materially participates and perform more than 750 hours of services during the tax year in real property trades or businesses. Ideally, taxpayers should prepare contemporaneous time logs that detail the services rendered.
• For purposes of determining whether a taxpayer is a real estate professional, the taxpayer's material participation is determined separately for each rental property, unless the taxpayer makes an election to treat all interests in rental real estate as a single rental real estate activity.

[mickey]

They do not qualify as real estate professionals as I found out they are limited partners based on the 5 K-1s they received.

They are general partners in partnership XYZ that received in those 5 K-1s.

I think they don't quality to write off just any loss and believe they are limited to $25000 per year.

I wonder if that loss is affected by their income (W2 income combined $500K)....

[sjrcpa]

$25,000 rental real estate loss deduction is an exception to the no passive loss deduction unless there is passive income general rule. It only applies if your AGI is not over $150,000.