Looking for a little help, if someone knows the answer. I have a client who's profession is a hedge fund analyst. He ACTIVELY works full-time in this position and the majority of his income comes from K-1s where he has an equity position. (as well as taking part in the management of the fund) His K-1s all have a footnote regarding line 13W and the deductibility of these expenses as an individual. Previously, line 13W went to Schedule A, miscellaneous deductions subject to 2% limitation. Since his K-1s are marked as "active-no limitation", Ultra Tax is taking this as an above the line deduction against his income in 2018. I can't find any guidance whether or not this is correct because everything I find refers to passive investors. As a passive investor, there's no doubt that it's no longer deductible. For him, though, it's his profession and these seem to be ordinary business expenses in the regular course of business. Keep in mind that these K-1s, with the footnote, go to everyone so it's not specific to him. There's also a footnote about long-term gains and the 3-year holding period for carried interest. Those rules absolutely apply to him and these two rules seem mutually exclusive. I.e. If carried interest rules apply, it seems he should be able to deduct the 13W expenses. If carried interest doesn't apply, he cannot.
Any help would be greatly appreciated. Thanks in advance.
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Glen Ross
CPA
ROSS & COMPANY, CPA PLLC
Smithtown NY
glen@rosscompanycpa.com------------------------------