I disposed of my interest in my K-1. How do I report my prior year loss on my return?

If the taxpayer has prior year passive losses which were not allowed due to the passive loss limitations, disposing of the investment may permit the taxpayer to reclassify the prior year passive losses to a non-passive allowed loss in the year of disposal. You will need to reclassify the loss by adding a second K-1 entry to the account. 

How do I add a second entry? 

1. Create a second K-1 entry.
2. Instead of the partnership name, enter ‘Reclassified Loss’. This will permit you to identify the source of the separate item on Line 28 of Schedule E.
3. Enter the loss in box 1 as a negative amount. The non-passive allowed loss in the year of disposal will be reported on a separate line of Line 28, Schedule E and not as a net amount with other entries from this entity.