Knowledge Base

11124: K1P - Income from PTP Considered Nonpassive

1040 Individual Data Entry

In an individual return, on the K1P screen, I have marked income from a publicly traded partnership as passive income, but it flows to Part II, Schedule E, column (j) Non-passive income. Shouldn't it flow to column (g), Passive income?


IRS rules treat an overall loss from a publicly traded partnership (PTP) as passive and an overall gain from a PTP as nonpassive. Per the Instructions for Form 8582:

"Passive activity loss rules for partners in PTPs. Do not report passive income, gains, or losses from a PTP on Form 8582. Instead, use the following rules to figure and report your income, gains, and losses from passive activities you held through each PTP you owned during the tax year.

1. Combine any current year income, gains and losses, and any prior year unallowed losses to see if you have an overall loss from the PTP. Include only the same types of income and losses you would include to figure your net income or loss from a non-PTP passive activity. See Passive Activity Income and Deductions, earlier [in the instructions].

2. If you have an overall gain, the net gain portion (total gain minus total losses) is nonpassive income.

It is important to figure the nonpassive income because it must be included in modified adjusted gross income to figure the special allowance for active participation in a non-PTP rental real estate activity on Form 8582. Also, you may be able to include the nonpassive income in investment income when figuring your investment interest expense deduction. See Form 4952, Investment Interest Expense Deduction."

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