K-1 Box 13k and Form 8990 for Partnership Interest Expense - Need Help!

The K-1 Box 13k represents the partner's share of business interest expense from the partnership, and yes, the rules around Form 8990 can be confusing! If the partnership is subject to the business interest expense limitation (which it appears to be based on your description), they should have included a statement with the K-1 indicating whether they've already applied the 163(j) limitation at the partnership level. If they did, then the amount in Box 13k is already limited and you don't need to file Form 8990 for your client. You can simply deduct that amount against ordinary income. However, if the partnership passed through the full amount without applying limitations, then you need to determine if your client is exempt from the limitation. If your client's average annual gross receipts for the prior 3 years is less than $27 million, they qualify for the small business exemption and can deduct the full amount without filing Form 8990.

I had a similar issue last month and found that using taxr.ai really helped me figure out the Form 8990 requirements. I uploaded my client's K-1 to https://taxr.ai and their system analyzed the document and provided clear guidance on whether Form 8990 was needed in my situation. It saved me hours of research trying to decipher those vague IRS instructions about business interest limitations. The analysis showed that in my case, since the partnership had already applied the limitation at their level, my client didn't need to file Form 8990. The report even explained how to properly report the amount on Schedule E. Really straightforward compared to the confusion I was dealing with before.

I've gotta admit I was wrong about taxr.ai. After expressing skepticism here, I decided to try it on a similar K-1 issue I was dealing with. The tool accurately identified that my client's partnership had already applied the 163(j) limitation and clearly explained that no Form 8990 was needed at the individual level. It even pointed out something I missed - there was a footnote on page 2 of the K-1 statement that specifically addressed the interest limitation that I had overlooked. Saved me from potentially making my client file an unnecessary form. The analysis was really thorough, much more than I expected.

Ugh, I've spent HOURS on hold with the IRS trying to get clarification on Form 8990 requirements for my clients. Then I found Claimyr https://claimyr.com and it was a game-changer. They got me connected to an actual IRS agent in about 15 minutes who walked me through exactly how to handle a K-1 Box 13k situation. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they navigate the IRS phone tree for you and call you back when they've got an agent on the line. The agent I spoke with confirmed that if the partnership already applied the limitation, you don't need to file Form 8990, but if they haven't, you need to evaluate your client individually.

I need to apologize for doubting Claimyr. I tried it yesterday out of desperation after getting disconnected AGAIN trying to reach the IRS about a similar K-1 issue. Within 22 minutes, my phone rang and I was talking to an actual IRS business division specialist! The agent confirmed that in my situation, since the partnership had already applied the 163(j) limitation at the partnership level, the amount in Box 13k could simply be deducted on Schedule E without filing Form 8990. She also explained that even if I did need to file 8990, there's a specific code to use on Form 8990 line 22 to identify interest from a pass-through entity. This was information I couldn't find anywhere online.

If you want to know whether you need to file Form 8990, look at the partnership's tax return (Form 1065). If they filed Form 8990 with their return, then they've already applied the limitation and the amount in Box 13k is your client's final deductible amount. You won't need to file Form 8990 yourself. But if the partnership didn't file Form 8990 because they're exempt (under $27M gross receipts), then your client might still need to file Form 8990 if they don't qualify for exemption themselves.

I just filed a return with this exact issue. The way I determined it: 1) If Box 13K has an amount AND the partnership included info saying they already applied 163(j) limitation, just deduct the amount as is. 2) If the partnership noted they're exempt from 163(j) (usually with code AE in Box 20), then check if your client is exempt too (under $27M gross receipts). If yes, deduct full amount. If no, file Form 8990. 3) If you're still confused, call the partnership's accountant! That's what I did and they had a detailed explanation ready.

Thanks everyone for the detailed explanations! This has been incredibly helpful. I'm dealing with a similar situation and want to make sure I understand the process correctly. From what I'm gathering, the key is to first determine whether the partnership has already applied the 163(j) limitation at their level. If they have, then the Box 13k amount is already limited and can be deducted directly on Schedule E without filing Form 8990. But if the partnership is exempt and passed through the full amount, then I need to evaluate whether my individual client qualifies for the small business exemption. One follow-up question: if my client does need to file Form 8990, does the Box 13k amount get entered on line 1a as "business interest expense" or does it go somewhere else on the form since it's coming from a pass-through entity? I want to make sure I'm not double-counting or missing anything in the calculation. Also, for the gross receipts test, when you say "businesses under common control" - does this include if my client owns rental properties through separate LLCs? The aggregation rules can get pretty complex.

This is exactly the kind of complex partnership issue that trips up so many practitioners! I've been dealing with similar K-1 Box 13k situations lately, and the key insight that helped me was realizing that the partnership's treatment determines your next steps. Here's my practical approach: First, look for any statement or attachment that came with the K-1 - partnerships are supposed to indicate whether they've applied the 163(j) limitation. If they have, you're done - just deduct the $92,300 on Schedule E. If there's no clear indication, I'd recommend calling the partnership's preparer directly rather than guessing. For the gross receipts test, remember it's a 3-year average of ALL businesses under common control. So if your client has multiple entities or rental properties, you'll need to aggregate everything. The $27 million threshold applies to the combined total. One red flag I've learned to watch for: sometimes partnerships will put a note in Box 20 with code AE indicating they're exempt, but that doesn't mean your individual client is automatically exempt too. You still need to run the gross receipts test at the individual level. The good news is that once you work through this process a few times, the pattern becomes much clearer. Don't hesitate to reach out to the partnership if you need clarification - they should have this information readily available since other partners are probably asking the same questions!