As you may or may not understand, there is a specific order that determines if losses are allowed on a tax return:
Still confused on the recording of net rental loss (box 2) on my K-1 I just received. Property is a SFR condo unit being rented which I own 25% and was acquired in 2021. Property does not require special handling for real estate and all of my investment activity is at risk. The person preparing the K-1 reflects it as passive income and checked box 20 (Z stmt) which included statement A and disclosed the same rental loss and UBIA value of qualified property which greatly exceeds the tax loss. In using Turbo Tax and answering the questions, I am getting no tax benefit of the loss to reduce my taxable income. Any thoughts? Thanks
Passive activity losses can only offset passive activity income. Since you acquired this property in 2021 and have Rental losses, these will be carryovers to 2022 instead of impacting your 2021 return. If you have income from the property in 2022 the losses will offset the income up to $0 and any remaining loss will carryover to 2023. If you have additional losses in 2022, these will add to the carryover to 2023.
If you still have carryover losses on your return when you dispose of the property, the loss will be recognized against the disposition up to certain limitations.
Please see Passive Activities for more information and additional links.