The IRS limits losses and deductions from passthrough K-1 activities using three calculations: the basis limitation, at-risk limitation, and passive limitation.
The program applies the limits as follows:
- Basis limits are applied first.
- If losses are allowed by the basis limits, at-risk limits (Form 6198) are applied.
- If losses are allowed by the basis and at-risk limits, the passive limits (Form 8582) are applied for passive activities.
Refer to the instructions for Schedule E for more information about K-1 loss limitations.