Question about Schedule K-1 and Rental Properties and Royalties (Sch E)

[Gart Robert]

Hi Guys! So it's my first year filing my taxes for my multi-member LLC's. I filed my business taxes first which generated my schedule K1's for my partner and I. I show a dollar amount in section 3 (Partner's Share of Current Year Income, Deductions, Credits, and Other Items) in both Box 1 and 2. The amount in value 2 raises my taxes due which makes sense. My question is when I get to schedule E in my tax return for rental income I am used to putting the total amount I collect for rents. I have a feeling I should be including the amount in my K1 box 2 in my rental income in schedule E vs. adding up my total rental checks again for all the rent I collect. I feel like I am getting taxed twice by ignoring the value in the K1 and just adding in my total rental checks for the year. Can anyone point me in the right direction if you have done this before?

[Linda Weygant]

Oh my goodness - you are barking up the wrong tree entirely.

First of all, if your MMLLC only has rental properties, you should not be seeing amounts in both box 1 and 2.  Everything should be in box 2.  There are a few exceptions to this, but you haven't laid out any facts that would indicate this to be true.

Second of all, STEP AWAY FROM THE SCHEDULE E.  That is not where you report K1 activity.

Third - Did you receive a basis schedule with your K1 package?  Also, do you have Part II on page 1 of the K1 filled out correctly, particularly lines K and L?  Did you consider QBI (do you have line 20, code Z completed correctly)?

Lastly, there are new requirements for issuing K2 and K3 forms this year.  

I only bring all of this up because I see SO MANY incorrectly completed 1065s and their associated K1s when lay people attempt to self prepare.  It sounds like you've gone down the same road that other self preparers have gone down and you really should consider backing up and getting yourself to a professional.