K-1 for Estate

[peggysioux]

Have a K-1 showing $3,356 in box 7, net rental real estate and $10,034 in box 9 for directely apportioned deductions. There is a breakdown of the passive activity income and deductions on a separate page. The breakdown shows under the Passive Activity Income, depreciation of $10,034 with the net income of $3,356. However, my tax program is taking box 9 deduuction of $10,034 from the net income of $3,356 giving taxpayer a total net loss for rental of $6,678. This is doubling dipping - it looks as though depreciation was already included in net income so why would it be deducted again?? Is K-1 incorrect .....should the net income show $13,390 and then give the $10,034 deduction? Please help me to understand!!

[Bees Knees]

The instructions for lines 6 through 8 of the K-1 says:

Enter the beneficiary’s share of trade or
business, rental real estate, and other
rental income, minus allocable
deductions (other than directly
apportionable deductions)….

Line 9 of the K-1 is for directly apportioned deductions. Thus, the amounts on lines 6 through 8 should not include the deduction for the amounts reported on line 9.

It the K-1 includes the deduction for depreciation on both lines 7 and line 9, it was prepared wrong.

[Burke]

I just tried a sample of this on a Form 1041 and the figure carried to the K-1 shows the NET real estate income after depreciation deds (to the extent of distributions) on Line 7 with nothing on line 9. I will try to find out when Line 9 is actually used.

[peggysioux]

K-1 for Estate

Bees Knees, if the instructions state lines 6 through 8 should not include allocable deductions (other than directly apportionable deductions), I take that as it should include portion that pertains to directly apportionable deductions; however that is what box 9 is "directly apportioned deductions". So.....I am still confused, the instructions seems to contradict itself or maybe my brain is just not clicking too well today.

[Bees Knees]

Bees Knees, if the instructions state lines 6 through 8 should not include allocable deductions (other than directly apportionable deductions), I take that as it should include portion that pertains to directly apportionable deductions; however that is what box 9 is "directly apportioned deductions". So.....I am still confused, the instructions seems to contradict itself or maybe my brain is just not clicking too well today.

No, read the instructions for line 7 again.

Enter the beneficiary’s share of trade or
business, rental real estate, and other
rental income, minus allocable
deductions (other than directly
apportionable deductions)….

Line 7 SHOULD include allocable deductions, OTHER THAN directly apportionable deductions. That means line 7 is the net of income and deductions, not including directly apportionable deductions reported on line 9.

[Burke]

The one sure way to find out the source of these figures is to have the entire 1041 tax return to look at. Can you call the preparer and ask regarding these lines, or perhaps the bene has it?

[Burke]

Have a K-1 showing $3,356 in box 7, net rental real estate and $10,034 in box 9 for directely apportioned deductions. There is a breakdown of the passive activity income and deductions on a separate page. The breakdown shows under the Passive Activity Income, depreciation of $10,034 with the net income of $3,356. However, my tax program is taking box 9 deduuction of $10,034 from the net income of $3,356 giving taxpayer a total net loss for rental of $6,678. This is doubling dipping - it looks as though depreciation was already included in net income so why would it be deducted again?? Is K-1 incorrect .....should the net income show $13,390 and then give the $10,034 deduction? Please help me to understand!!

This might help. For an estate, the depreciation is allocated to the beneficiaries and the estate based on the income allocable to each. Depreciation allocated to beneficiaries is reported directly on the K-1. If depreciation is allocated to beneficiaries, it does not get reported on page 1 of Form 1041 and it will not affect DNI. (It is possible for a beneficiary to have a depreciation deduction even when the trust or estate has an operating loss.) You would not know if this was done correctly unless you could review the entire 1041. But it sounds like your software is doing the right thing the way the figures are shown on the K-1.