How to carryover mark-to-market loss from schedule K to future years as an investor

[dc20222023]

what forms should I do or double check to make sure I carryover the mark-to-market loss from schedule K to future years as an investor. They are supposed to write off investors' W2 and 1099 incomes. If I file Form 8582 (passive income/loss), I won't be able to offset those active incomes? Thank you!

[DavidD66]

Do you have mark-to-market gains/losses reported to you on a Form K-1?  If so, where exactly on the form are they reported, and with what code?  Did you indicate that you materially participated?   

If you have mark-to-market gains or losses due to a 475f election reported on Form K-1 they need to be reported on Form 4797 Part II.  You will have to use TurboTax Desktop to accomplish this.  Here's how:

• Click on the Forms icon in the upper right of your screen.
• This will you to the Forms mode
• Click on "Open Form" if the upper left of your screen
• Click on Form 4797 p1: Sales of Business Property
• Scroll down a little to the entry table
• Enter your gains from your K-1.  You can use Various as Date acquired, 12/31/2024, as Date Sold, and a cost basis of $0.Your gain will be reported in Part II of Form 4797

If you are using TT Online and want to switch to Desktop, see the following for instructions:  How do I switch from TurboTax Online to TurboTax Desktop?  

[dc20222023]

Thank you for the reply. I am not materially participated in. I also have personal trading account that is mark-to-market too. I also want to know how to carry over that loss. Code is zz. Which form can i find a box that says carryover amount so that I can make sure it is being carried over.

[dc20222023]

DavidD66 Thank you for the reply. I am not materially participated in because I am a limited partner but it is considered active income and QBI income, although I supposed not earned income. I also have personal trading account that is mark-to-market too. I also want to know how to carry over that loss if it happens in the future. Code is zz. Which form can i find a box that says carryover amount so that I can make sure it is being carried over.

[RobertB4444]

You are not materially participating.  That makes this passive, not active, income.  That means the losses are passive losses and are carried over on form 8582 until they are usable in the future.

@dc20222023 

[dc20222023]

Thank you for the reply @RobertB4444 

If I report it on form 8582, can it still use it to offset w2 and 1099 incomes in future years? If not, I'm sorry I said it wrong and I was materially participating. The loss is supposed to be able to offset w2 and 1099 incomes. 

[dc20222023]

@RobertB4444 @DavidD66 Should the carry forward be on form 8995 line 16 and it would be ok? If it is the loss from schedule k, use schedule k's Section D2 199A-QBI carryforward, and it will be consolidated into form 8995.

However, on schedule k's Section D2, no matter what I do, "carryforward to 2025" is always greyed out. Unless I put amount in "carryovers to 2024". Whatever amount I put in "carryovers to 2024", it show up in "carryforward to 2025". But I don't have carryovers from 2023 to 2024. I am seeing the right amount show up on form 8995 though.

[Rick19744]

This thread is troublesome.  I'm not sure if you have met with a tax professional who understands the trading world, but if you have, based on the limited information I believe you have some misunderstandings.

The whole purpose of making a mark-to-market election (MTM) is to utilize any losses currently.  However, in order to be able to make that election, you must meet the trader tax status (TTS) threshold.  So if you are only a limited partner receiving a K-1, this defeats the purpose of the MTM election since you are now treated as a passive member and the activity passing through on your K-1 is passive reported on form 8582 as noted in a previous thread.  Since the losses are passive, these do not offset any current year income and will only be used in years where you generate passive income.

You need to meet with a tax professional.  The cost will far outweigh any penalties for preparing an incorrect tax return or minimize any tax deferrals in future years.

If you have a "personal" account where you indicate you also made the MTM election, hopefully you understand the TTS requirements.

[Mike9241]

the passive loss from trading cannot be used to offset other non-passive ordinary income. it can only be used to offset passive income though this income doesn't have to be from trading. should you dispose of your interest the loss should then be allowed 

[dc20222023]

@Rick19744 From the CPAs that I talked to and the blogs of trusted CPA firms, not everyone who receives the schedule k is passive income, otherwise, why does schedule k have the QBI section? Isn't passive income excluded from QBI?

[Rick19744]

@dc20222023 I don't disagree with your statement "...not everyone who receives the schedule k is passive income....."

However, your facts are very limited, QBI and TTS along with MTM are complicated areas and a forum such as this is not designed to vet out all of the unknown facts.

That is why I recommended you meet with a tax professional where you can have a one on one and then file a complete and accurate tax return.

[dc20222023]

@Rick19744 I just want to know how to make sure I carryforward the loss so that in future years I can use them. Even I have a tax professional file it for me I still want to have the common sense to check the carryforward is there before I sign my returns.

[KristinaK]

If the activity truly falls under the MTM election, then it's possible that a net operating loss (NOL) is created that will be carried forward to future years. You will see the details of the NOL on the Federal Carryover Worksheet and NOL Worksheet. 

If it's a passive activity, then, as it was mentioned above, the unallowed losses will be reported on Form 8582. 

[Mike9241]

there may be no carryforward. under mark-to-market, if not a passive activity, that loss would offset other income, but you night have a net operating loss. Use IRS form 172 to calculate it. It is not supported in Turbotax. if its passive the loss can only be used against other passive income but would be freed up if you dispose of the activity. For passive loss check the form 8582.

https://www.irs.gov/site-index-search?search=172&field_pup_historical_1=1&field_pup_historical=1 

[dc20222023]

Thank you! @KristinaK. I do see my QBI carryforward from 8995 on the Federal Carryforward Field.

Thank you! @Mike9241 Do I fill out 172 myself and attached it with my personal return filed using Turbotax home and business? Does Turbotax let me scan and then e-file including the attachments?

Once I calculated my nol carryforward using form 172, do I type it in the Federal carryforward worksheet line 14a? Does this number show up on any other forms or schedules since the Federal Carryforward Worksheet is just for our own record and won't be sent to the IRS, right?