For 2015, a lounge business lost money.
In 2016, it made money. So I paid taxes on it, but the gains were not offset by the 2015 losses.
Can I offset the 2016 gains by the 2015 losses?
Can I carryforward, and carry back, K1 losses? No, only NOL and passive activity losses can do that.
Can I offset the 2016 gains by the 2015 losses?
Not unless they were carried forward on a PAL form 8582.
@Critter#2 Bummer. So if I didn't characterize it as "Passive" in 2015, then each individual year is a standalone and I have to pay taxes on any income for the year and cannot use prior year's losses to offset the gains in a particular year?
I highly recommend you seek professional assistance to see if you filed the returns correctly and to amend them if you didn't. If you had non passive losses and you had enough basis in the investment then you should have losses claimed on the prior year returns that may have created an NOL. But a pro needs to assess the entire situation ... this forum is not the proper way to address this.
I believe it CAN be carried forward.
"Any losses and deductions not allowed this year because of the basis limit can be carried forward indefinitely and deducted in a later year subject to the basis limit for that year."