IRS Schedule E Part II concerns income or loss the taxpayer received from partnerships and S corporations. Line 27 in Part II asks this yes/no question: "Are you reporting any loss not allowed in a prior year due to the at-risk or basis limitations, a prior year unallowed loss from a passive activity (if that loss was not reported on Form 8582), or unreimbursed partnership expenses?"
This question needs to be answered Yes when the return includes any of the following items from a partnership or S corporation reported on Schedule K-1:
- Unreimbursed partnership expenses.
- An unallowed loss in a prior year due to at-risk or basis limitations.
- An unallowed passive loss in a prior year that was not reported on Form 8582.
By default, the line 27 question is answered No. To answer it Yes, from the Federal Section of the tax return (Form 1040) select:
- Income
- Other Income
- K-1 Earnings
- Schedule E (Page 2) Questions - Check the box.
Check here if you are reporting losses not allowed in prior years due to the at-risk or basis limitations, passive losses not reported on Form 8582, or unreimbursed partnership expenses
Unreimbursed Partnership Expenses
See here for information on entering unreimbursed partnership expenses in the individual tax return.
Unallowed Prior Year Loss Due to Limitations
The prior year unallowed loss that is now deductible is entered on a separate K-1 entry line from any other K-1s received.
From the Federal Section of the tax return (Form 1040) follow these steps:
- Select Income
- Select Other Income
- Select K-1 Earnings - Select the appropriate K-1 menu, whether from a partnership, an S corporation, or an estate or trust. If a K-1 has already been entered, select the blue plus sign to add a new one.
- In Part I, enter "PYA" for the entity's name, then enter its EIN and address.
- Check the box for "All Investment is At-Risk".
- Select Continue.
- In Box 1, enter the amount of the allowed loss as a positive number.
Unallowed Passive Loss not Reported on Form 8582
The prior year passive unallowed loss that is now deductible is entered on a separate K-1 entry line from any other K-1s received.
From the Federal Section of the tax return (Form 1040) follow these steps:
- Select Income
- Select Other Income
- Select K-1 Earnings - Select the appropriate K-1 menu, whether from a partnership, an S corporation, or an estate or trust. If a K-1 has already been entered, select the blue plus sign to add a new one.
- In Part I, enter "PYA" for the entity's name, then enter its EIN and address.
- Check the box for "This K-1 is from a passive entity".
- Check the box for "All Investment is At-Risk".
- Select Continue.
- In the box headed "Actively managed passive loss carryover", enter the amount of the allowed loss as a positive number.
Additional Information: