Help with Sched E--Partnership Income

[Super Mom]

I just want to be sure I'm correct on this since it's my first return for a partner (personal). My tax software automatically subtracted the section 179 deduction allocable to him from his income one the sched E which went to line 17 of the 1040. This seems to be correct from everything I'm looking at, including the taxbook. However, I'm comparing to the 2006 personal return of his done by someone else and she didn't subtract the section 179 on the schedule E or on line 17 1040. Am I right?

Thanks in advance for your help!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[Nashville]

You are Correct

SuperMom? from what you are saying, you are correct. The K-1 for the most part tells you what line on the 1040 schedules to enter the line items.

If you have the 2006 K-1, and last years' preparer left out the s.179 deduction, make sure the s.179 was netted against the ordinary income - as some preparers will do this. This is not proper procedure but in most cases does not result in a change in tax.

If the preparer left out the s.179 expense entirely, this is justification for an amended return because the taxpayer has overpaid his taxes.

[David1980]

The other possibility is if he had a loss on the K-1 or on a Schedule C or somewhere he may not have qualified at the individual level to take the 179 on his 2006 return due to the income limitation. Was there a 4562 on his 2006 return?

[Super Mom]

There is a 4562

Yes, there is a 4562 on the 2006 return. However the income was listed as "passive" it is not passive, he materially participates, is there working all the time! Maybe because she labeled the income as passive he wouldn't have qualified for the sect. 179????? She didn't net the amount on line 17, I checked the numbers.

Thanks for all of your great help!!!!!!!!!!!!!!

[JG EA]

Yes, if passive the 179 would not have been allowed.