How to Deduct Unreimbursed Partnership Expenses
- 1). Determine if the partnership is involved in nonpassive or passive activities. Your involvement in a business is nonpassive if your participation is considered material. If based on all the facts and circumstances, your involvement in the business was regular, continuous and substantial, you had material involvement. Some examples of material participation include you working for the business for more than 500 hours during the year, you doing substantially all the work for the business, or if you materially participated for any five of the past 10 years.
- 2). Enter the unreimbursed partnership expenses for nonpassive activities in column (h) of Line 28 in Schedule E. You should already have a Schedule E to report your gain or loss on the partnership, as well as any other supplemental income you received during the year. This should be listed on a separate line from any other supplemental income or losses.
- 3). Enter the unreimbursed partnership expenses for passive activities in column (f) of Line 28 in Schedule E. This should be on a separate line from all other supplemental income or losses.
- 4). Enter UPE in column (a) of Line 28 in Schedule E, next to the unreimbursed expense amount.
- 5). Add all of the income and losses from your partnership and other supplemental income. Record that amount on Line 41 of Schedule E.
- 6). Enter the amount from Line 41 of Schedule onto Line 17 of your 1040 or Line 18 of your 1040NR.