According to the IRS, “You can deduct unreimbursed ordinary and necessary partnership expenses you paid on behalf of the partnership on Schedule E if you were required to pay these expenses under the partnership agreement.” This deduction is reported on line 28 of Schedule E and can reduce your income subject to self-employment tax.
How do I report this within the program?
To make this election within the program, you will need to create an additional entry for your K-1. Please follow the path below:
- Federal
- Income (select my forms)
- Less Common Income
- K-1 Earnings
- Schedule K-1 Form 1065
- Add a Schedule K-1 Form 1065
You will then add an additional Schedule K-1 Form 1065 entry, with the same entity information as the Schedule K-1 you are claiming the expenses for, EXCEPT the Partnership Name. Instead of the entity name you will enter "UPE Unreimbursed Partnership Expenses". You will NOT include the income information from that K-1. Instead, you will enter your UPE in one of the following boxes:
- If you have passive income, you will enter your unreimbursed partnership expenses as a NEGATIVE number under box 2 for Net Rental Real Estate Income.
- If you have Non-Passive income you will enter your unreimbursed partnership expenses as a NEGATIVE number under box 1 for Ordinary Business Income.
Entering in this information here will successfully create a deduction for the Unreimbursed Partnership Expenses.
You may read more about this deduction, here.