K-1 (1065) additional investment expense

[Catherine]

This item came through as a Box 20 Code "N" item on the K-1.  I have no idea what to do with "excess investment interest."  Can anyone point me in the right direction?  Form 49-whatever for investment interest?

[BulldogTom]

Look at the 8990.   The K-1 Entity had Excess Business Interest Expense and were limited.   The partner needs to fill the 8990.   I am not sure exactly how to make it flow through to the partner, but I will be working on this as well today.   Time to pull out the books and see what I can find.

Tom
Longview, TX

 

[Catherine]

Thanks, @BulldogTom and I'll look at the 8990 when I get back to this client later today.

[BulldogTom]

On 4/5/2022 at 10:01 AM, Catherine said:

Thanks, @BulldogTom and I'll look at the 8990 when I get back to this client later today.

Did you figure it out @Catherine?  I read the instructions for the form and my head started swimming.   I think I understand the concept (if a business has a loss that was driven by a lot of interest, the deduction on the interest will be limited) but not the application to a partner.

The K-1 Box 1 has a loss of 6,800 and Box 20 Code N statement has 3,000 of Business Interest Expense and 14,000 of Adjusted Taxable Income.   I think you start by filling in Schedule A on page 3 of the form, putting 3K in column C and 14K in column F.   The 3K then transfer to page 1, Section I, line 3 and 14K transfers to Section II, line 14.

And when I get that done, I show on page 2 that I have a 3K allowable deduction that I have no idea where to put on the 1040.

Did you do better than I did?

Tom
Longview, tX

[Catherine]

Hi @BulldogTomno I didn't figure it out. Got derailed by other problem clients and never got back to this one! The guy's in France until Monday so I tabled it. Looks from what you wrote that I need to pull that one out (tomorrow; too fried tonight) and see if I can make heads or tails of it on a second go-round. I'll report back, either way.

[jklcpa]

On 4/4/2022 at 5:07 PM, Catherine said:

This item came through as a Box 20 Code "N" item on the K-1.  I have no idea what to do with "excess investment interest."  Can anyone point me in the right direction?  Form 49-whatever for investment interest?

The allowable interest is already deducted and has been factored in to any income or loss reported on the K-1.  The amount in box 20 with code N is for adjusting the partner's basis. Here's the linked  K-1 instructions where code N is shown below.  You may also want to read the instructions in the section for the basis adjustment worksheet and the section pertaining to partner's limitation on losses and deductions.  I think your entry from box 20, code N goes on line 10 of that worksheet. 

I think what Tom is referring to that causes need for Form 8990 is if there is an entry on line 13 having code K where the interest expense must be adjusted at the partner level. Sorry, I've not had to do this yet.

[Catherine]

Thank you, @jklcpa! I just this afternoon found that it was a basis adjustment item - on the IRS instructions - and was going to post it here myself. But I'm going to save your version to the client's file, because you blew it up big enough to read without squinting.