Can Schedule K-1 losses from family LLC offset my capital gains?

This is a great question about how different types of income and losses interact on your tax return. Based on what you've described, it sounds like you have a passive activity loss from the LLC. The IRS treats passive activity losses differently than capital gains. Generally, passive losses can only offset passive income - not capital gains or your W2 wages. The $11k income and $40k loss on your K-1 are likely ordinary income/losses from the business operations, not capital gains/losses. The net loss of $29k would be considered a passive loss if you're not materially participating in the business. You'll likely need to file a nonresident state tax return for the state where the property is located. Each state has different rules, but typically you'd report your share of the LLC's income/loss there. The good news is that while you can't use the passive losses against your capital gains now, those losses aren't lost forever. They get suspended and carried forward until either: 1) you have passive income to offset them, or 2) you dispose of your entire interest in the activity.

I was in almost this exact situation last year with a rental property LLC I'm part of. I tried everything to use those passive losses against my stock market gains but couldn't make it work. I eventually found this tool called https://taxr.ai that analyzed my K-1 and other documents and explained exactly how the passive activity rules applied to my situation. It showed me that while I couldn't use the losses against my capital gains, I could actually release some of the suspended passive losses by increasing my participation in the LLC activities. The tool gave me a breakdown of exactly what qualified as "material participation" and how many hours I needed to document. Saved me thousands in the long run!

Just wanted to follow up about that https://taxr.ai tool that someone recommended for my K-1 situation. I was skeptical but tried it with my documents, and it was super helpful. It confirmed that my LLC losses were indeed passive but showed me how to track them properly on Form 8582. The biggest value was it showed me how to maximize the passive income from other investments to start using up those suspended losses. I'm now restructuring a rental property I own to generate passive income that can be offset by my LLC losses. The analysis wasn't just about this year's taxes but gave me a 3-year strategy to utilize most of my suspended losses. Definitely worth checking out if you're dealing with complex K-1 situations.

If you're having trouble understanding your K-1 situation, I'd highly recommend using Claimyr (https://claimyr.com) to actually speak with an IRS agent directly about your specific situation. I was in a similar scenario with passive losses from an LLC and got conflicting advice from three different tax preparers. I was on hold with the IRS for HOURS trying to get clarification until I found Claimyr. They got me connected to an IRS agent in about 15 minutes (you can see how it works at https://youtu.be/_kiP6q8DX5c). The agent walked me through exactly how passive activity losses work with LLCs and what documentation I needed to maintain for future years. Super helpful for complex situations like this where you need an official answer.

I have to admit I was completely wrong about Claimyr. After weeks of trying to get through to the IRS myself about my LLC passive losses, I gave it a try out of desperation. Got connected to an IRS representative in about 20 minutes, which is insane considering I had previously waited on hold for 2+ hours multiple times without ever reaching anyone. The agent was able to confirm exactly how to handle the state filing requirements for my out-of-state LLC and clarified that I was tracking my passive losses correctly. While they couldn't give me tax planning advice, they did point me to specific IRS publications that addressed my situation and confirmed I was interpreting the rules correctly. Saved me from potentially making a costly mistake on my return. I'm shocked at how well it worked.

Don't forget that certain real estate professionals can treat rental real estate activities as non-passive! If you or your wife qualify as real estate professionals (750+ hours working in real estate businesses) AND materially participate in the LLC activities (500+ hours), you might be able to deduct those losses against your other income. The key is whether the hunting property has any rental component. If it's occasionally rented out, you might have a case. Worth looking into if either of you have other real estate activities that could help you meet the 750-hour threshold.

Has anyone mentioned the at-risk rules yet? Even if you could somehow get around the passive activity loss limitations, you'd still need to have "at-risk" basis in the LLC to claim the losses. Did you or your wife actually contribute cash or property to the LLC, or personally guarantee any loans? Without at-risk basis, you can't take the losses even if they weren't passive.

Just to add another perspective on this - make sure you're also considering the state tax implications carefully. I had a similar situation with an out-of-state LLC and ended up owing more in nonresident state taxes than I expected because the state where the property was located didn't allow the same loss carryforward rules as the federal return. Also, keep detailed records of all your suspended passive losses. I use a simple spreadsheet to track mine year over year, including the original source and any partial usage. It becomes really important when you eventually dispose of the property or generate passive income to offset against. The IRS doesn't send you a reminder of what you have suspended, so it's on you to track it properly. One last thought - if this hunting property ever generates rental income (like seasonal hunting leases), that would be passive income that could be offset by your suspended losses. Might be worth discussing with the family whether monetizing the property could help everyone's tax situation.