SE Tax Question

[hjltax]

Ok, lets say a single individual has one Schedule C reporting a net profit of $20,000 (subject to SE tax). He also is a General Partner in a partnership. He is active and the partnership reports an ordinary loss of ($30,000). Sch K-1, line 14, Self-employment earnings (loss) also reports ($30,000). He has insufficient basis to take the loss. Any and all debt reported on the K-1 is marked nonrecourse.

So, on the 1040, Line 12 is $20,000; and Line 17 is $0 (basis limitation).

For SE purposes, do I have SE income (before applying reductions) of $20,000 or $0? In other words, do you need basis in a particular activity before you can utilize a SE loss against other SE income?

Thanks!

p.s. It's my thought that you CAN net the loss against other SE income.

[PIGLEE]

The K-1 loss and gains go on page 2 of the Sch E. If it is subject (+ or -) to SE tax, it would be marked in the box on the K-1 the amount that is subject to SE tax. If you put the K-1 on the K-1 input page, it should all fall into place on your return.

[Bees Knees]

Don't rely on software to tell you the rules

The instructions for Schedule K-1 (Form 1065), box 14, self-employment earnings (loss) say:

If the amount on this line is a loss, enter
only the deductible amount on Schedule SE
(Form 1040). See Limitations on Losses,
Deductions, and Credits beginning on page
2.

Page 2 of the Schedule K-1 instructions talks about the passive loss, at-risk loss, and basis limitation rules. Thus, if the partner does not have basis in the loss, it is not deductible for income tax purposes, and it is also not deductible for SE tax purposes. It must be carried forward under the general basis limitation rules.