How do you enter Passive Activity Loss carryover? It does not appear to be reducing my tax from an LLC distribution, even though I have made no profit from this LLC.

[herman523]

I did not use TurboTax last year, but am using Premier this year.  I am a member of an LLC which sold some assets in 2021 and had a distribution less than the original investment,  The 2021 Passive Activity Loss carryover is about twice the original investment (this loss was not allowed in previous years). When I enter the K-1 info and the Passive Activity Carryover loss in turboTax, it does not appear that the carryover is helping offset the "gains" in the K-1.  My tax increases significantly.  I think I am missing something.

[Mike9241]

the gains from sales are probably not a passive gain (lines 8 through 10) and therefore your PAL c/o's will not be used. distributions do not affect PAL.  however, this is a presumption because  I don't know what lines the gains are on. you also need to track your basis. Turbotax does not do this.  the reason is that when the PALs are finally allowed they can't exceed your basis in the partnership.

[herman523]

Thanks Mike - The K-1 is showing a 9A (net long term capital gain) that is more than my original investment in the LLC.  It also has a value in 9c and in 10.  The value in 10 is $1K less than the 2021 distribution (from the sale of the asset).

The affect of this K-1 is driving my Long term capital gains up by the value in 9A ($102K), and thus driving up my tax bill significantly.

[herman523]

How can I update my basis in TurboTax ? 

[AliciaP1]

It depends on the type of K-1 you received (1120S or 1065).  If you received a K-1 1120S you can enter your correct basis on Form 7203 (which is on the S Corporation Basis (IRS requirement) screen in TurboTax Online).  If you received a K-1 1065 you should enter your basis information on the Enter Capital Account Information screen.  Both of these screens are part of the step-by-step interview for entering a K-1 in both TurboTax Online and Desktop.

@herman523

[Rick19744]

@herman523 

A couple of comments:

• I just want to reiterate what @Mike9241 noted in his response.  It is extremely important that you maintain a schedule of your investment in this LLC; known as your tax basis.  Without this, (1) you won't know if you are allowed to take losses, which means you can't tell TT whether losses are allowed, and (2) you will not be able to compute your overall gain or loss on this investment upon sale, liquidation, etc.
• You also have to keep in mind, that while the gain on line 9a increases your tax liability
  • this gain increases your tax basis, and
  • based on your facts, you received a distribution which most likely covers any tax attributable to this gain.
• The amount on line 9c is only used in determining your overall tax rate.