All Forum Posts by: Harry Garner

Quote from @Natalie Kolodij:

Your K-1 Shows your share of net income or less

That INCLDUES depreciation 

On the 1065 Parntership it reported: Rents - operating expenses - depreciation= net income/loss 

That's what's in box 2  of your k1 , it doesn't show up separately. It is calcualted on the 1065. 

Thanks for the quick response. It matches by understanding from what research I have done online and in the BP forums.

You mention that the net income/loss should be reported in box 2 of the K-1. Let me know if this is not allowed, but I have included a screenshot of the 2022 K-1 below along with a supplemental sheet that shows the income and expenses and the net income/loss. Notice this does not include depreciation which should be around $1200/person. On the K-1 it shows amounts in box 3 and 14 noted with A and C that correspond to the net income/loss calulation on the supplemental sheet and the gross rent. so there is no amount in box 2. Could this be correct? If so, what does it mean to not have a value in box 2 but in boxes 3 and 14?

I checked the return from the prior year including the K-1 and the 8825. The 8825 form from the prior year did include depreciation in the list of expenses in the appropriate box there, and was clearly included in the total expenses on line 16 and was subtracted from the gross rent to determine the net income/loss. This net income/loss was distrubuted evenly among the partners and entered on box 2 of the K-1 which seems to match with my understanding what has been stated in the responses here. I have not yet seen the 8825 form for 2022 as the taxes we prepared by an accountant in another state in cooperation with one of the partners who also lives there (2 of the partners live in AL where the rental property is located and 4 live in GA if that makes any difference). I hope to get copies of the 2022 tax return soon. One difference that is important to point out is that a different accountant prepared our taxes in 2021 than the current 2022 tax return. This new accountant did mention the previous accountant made some mistakes. I suppose considering the differences I have described it may be true that one of them made some mistakes, but I would like to understand which one. Also, I don't really want to have to pay tax related to this rental property considering it had rather negative cash flow in 2022, and including the depreciation would change the current gain into a loss so no personal tax impact there I believe.

Thanks
 

Thanks for the quick reply.

I have read through the operating agreement and there is no mention of depreciation. Looks like I need to ask the accountant some more questions about this.

Thanks

My wife and I have recently formed an LLC in Alabama with her 2 siblings and their spouses to purchase a short term rental property also in Alabama. We are 15 months into this and are now having our first full year taxes done by an accountant. We have received our K-1s and they do not appear to include depreciation and are showing a small gain. When I asked the accountant about the depreciation, she said that it did not flow through to the K-1s. Is this correct? Is there any circumstance with this type of situation with a partnership and LLC where real estate depreciation on rental property would not be included in the net gain/loss reported on the K-1s? I have done quite a bit of research and looked at lots of related posts here, and it seems that depreciation should be included, and it is a big part of the tax advantages of rental property.

Thanks