I'm using online tax preparation and have several MLP K1s (1065) They all show a loss in box 1 except for one that shows income. When I input the income, my taxes owed go up, but when I input the losses there is no difference in the taxes. Shouldn't the losses offset the income? Phil
Yes, the losses should reduce the box 1 K-1 income, if you coded that K-1 as passive income.
Your passive income losses are used against similar passive gain, and if the remainder is still a loss, it is suspended this year, to be used in future years against other passive income or upon sale or taxable exchange.
So I am thinking perhaps you coded the K-1 PTP with the gain as active participation rather than passive income/loss.
I checked the box "Not material participant material participant" during the process of inputing the data if thats what you mean.
Is it possible that my problem might be that I already took $3000 in long/short term capital losses earlier in the "interview"?
-- That should have no bearing on your passive or non-passive K-1 losses.
So did you check Not Material or Material?
Box 1 should not report capital gains/loss income, so no, that's not where to look.
I'd have to actually SEE the K-1s and your input to know for sure BUT it is likely that the MLPs have reported INVESTMENT type income (interest, dividends, gains, etc) to you, which would increase your tax liability AND also reported Operational or Ordinary Losses (from business operations or rental activities) to you. These losses are usually passive (such is the nature of most MLPs) which result in them only be able to offset OTHER PASSIVE income. IMPORTANT NOTE - interest, dividends & capital gains are NOT passive income, these are investment income items and as such cannot be used to offset passive losses.
I don't use TT so I can't comment on it directly, but it sounds to me like you might be getting the right answer.
As a side note - THIS is one of those areas where a tax pro brings something to the table. A good tax pro will know these rules and be able to process your returns appropriately, while the average DIY'er has no way of know whether its right or wrong. AND there is no quick way to know for sure - IRC Sec. 469 addresses and explains (yeah, right!) passive activities, how they work and how they're supposed to be treated for tax purposes.
The ONLY bright spot about 469 Activities is that the IRS doesn't understand them any better than the rest of us.
Gene E. Utterback, EA, RFC, ABA
Actually, all publicly traded partnerships (PTPs or MLPs) are treated differently than other passive investments. A loss in box 1 (and other business-related boxes) stays with the particular PTP; it doesn't get netted to another PTP (or even another passive activity) that might have positive income. So the losses don't show up on Schedule E "this" year. They carry forward until either the particular PTP has income against which to net it, or you sell it.
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