If the K1 I received shows a loss, do I need to enter it in this years tax return or wait until I sell the units or get positive activity in a future year?

[Tax2019Pay]

Thanks DianeW777 - you are always very helpful!!!

[AbrahamT]

 Although, in your situation, it technically is your loss because if you choose not to use these passive carryover losses from 2019 and not to amend your 2019 return for these losses, consequently, you won't the know the correct amount of these carryover losses to be applied to 2020 either so you you won't use them. Nonetheless, since this K-1 is a form of IRS documentation,it must be accurately accounted for. If down the road the IRS compares this K-1 from the company that issued you the K-1 to your personal tax return and sees that it is missing, it will be sure to cause a red flag.

[wrc41]

I am going from my return being prepared by a CPA to doing it myself. I have the prior year  suspended loss amounts for PTPs and I want to enter the prior year amounts. I’m trying to enter the amounts on the K-1 entry form Section A Passive Activity Adjustment to Income or Loss, line 1 (b) Carry over  from prior year and ditto for Section B. Then if I scroll to the bottom QBI worksheet the amounts are shown as “Before 2018” which is not the case! Is there a way to correct to 2021. If no why not?

[PatriciaV]

Yes, you can manually enter the prior year disallowed loss on K-1 Partner Disallowed Passive Losses, Line M (2021). When you make this entry, the value in Line A should change to a zero. Without knowing from what year the loss carried over, TurboTax defaults to the earliest option, before 2018.

@wrc41 

[wrc41]

Thank you for your answer but I'm not following your guidance because I'm not sure which form or worksheet you are referencing. On what form does the " K-1 Partner Disallowed Passive Losses, Line M (2021)"  appear?

I can't find it on the Partner's Share of Income, Credits and Deductions (K-1 input data).

I'm sorry TT defaults to showing the Section A Passivity Activity Adjustment to Income or Loss,

Column (b) "Suspended Loss Carryover From Prior year" is treated as "Before 2018" when in my case it for 2021.  The "prior year" to 2022 is 2021.  Heading it is not shown as year(s), 

[PatriciaV]

To make this change you need to be in Forms Mode, which was implied when you said you were able to "scroll to the bottom" of the QBI worksheet. This is available only in TurboTax for Desktop. If you are working in TurboTax Online, you won't be able to change how the suspended loss is entered.

Here are the steps:

1. Open your return and click the Forms icon in the TurboTax header.
2. In the Forms list on the left, find "K-1 Partner" for the PTP you need to edit.
3. Click the form name to open it in the large window.
4. Scroll down to Page 8 (this appears on the right side of the form) and find Disallowed Passive Losses by Year and Type.
5. Enter your 2021 passive loss carryover on Line M, Regular Tax column.
6. The amount shown on Line A should now be zero.
7. When finished, click Step-by-Step in the header to return to the main screens.

@wrc41 

[wrc41]

Thank you! My 82 year old eyes were missing the "M" since it was offset from the left side. Not a good excuse but the best I can offer. Should I consider the page 8 section of the K-1 as the location where the cumulative total of losses for previous years is kept each year (which is what the value is that I entered for 2021 (it is the cumulative losses through 2021). The next related question is: Should I also enter the 2021 cumulative total losses in Section A and Section B column (b)? or is that location for some other purpose?

Sure do appreciate your help!

[wrc41]

PS Forgot using Desktop, Premier Windows

[PatriciaV]

Yes, your carryovers are reported in this section of the K-1, usually page 8. TurboTax will make the appropriate entries for you, depending on how information is entered during the interview. 

You should not need to make any changes going forward, nor should you make other manual entries in any section of the K-1 Partner form. Instead, complete the K-1 interview using the Step-by-Step process of the TurboTax program, which is designed to capture all necessary information and complete the forms & worksheets accurately.

@wrc41

[JulieS]

No, you don't need to make corrections, and definitely shouldn't do so in Forms.

As for your other questions:

1. Yes, when you sell a rental property it is reported on Form 4797 to calculate the portion of the sale that is ordinary income (due to depreciation). 
2. If your gain is larger than the amount that is ordinary income, the rest goes to Schedule D as long term capital gain, where it is netted with other gains and losses, so in most cases you will have a 4797 and Schedule D.
3. When you sell your rental property, your passive losses from prior years are allowed in the year of the sale. This number is not limited to $3000, because it is a rental loss, not a capital loss. Also, because you sold the property, it is not a passive loss. 

This is a complex situation, so you should review the return until you are comfortable with it. Nothing you included in your question is unusual for the sale of a rental property where you had a lot of un-allowed rental losses in prior years. 

[Tax2019Pay]

Hi JulieS: Thanks. Just a couple of follow-up questions.

If after the ordinary income (recapture of depreciation) is addressed, Schedule D (gain from selling of the rental property against stock losses) calculation shows a positive number, can one use the prior year disallowed passive losses from K-1's (form 1065) for other unrelated properties to offset the positive number?

There is a debate where one should enter the rental property sale information.  Some said that it should be entered under Rental Properties and Royalties - sale of property/depreciation.  Others said that it should be reported under Business Items - sale of business properties.  Your thought?

At the time of initial rental, TurboTax chose fair market value as the depreciation base which was lower than the adjusted cost base.   When entering the rental property sale information, what should be entered for "Cost of Property (or Tax Basis) Plus Expense of Sale?  Should it be adjusted cost base at the time of purchase + renovation cost + expense of sale?

Finally, can you add what you paid for condo documents (legal and financial) at the time of review for purchase and conveyance charge (legal transfer from seller to buyer) to the cost base of the condo purchase?

Thanks so much.

[HopeS]

With regards to your 1st question on using capital loss,  your capital loss carryover on your investments is first used to offset the current year's capital gains if any. You can deduct up to $3,000 in capital losses ($1,500 if you're Married and Filing Separately). Losses beyond that amount can be deducted on future returns as a capital loss carryover until the loss is all used up. For example, if your net capital loss in 2020 was $7,000 and you're filing as single: If you have no capital gains for 2021 and 2022, you can deduct $3,000 of the loss on your 2020 return, $3,000 on your 2021 return, and the remaining $1,000 on your 2022 return.

The Tax Basis of the property will be used to compute the gain/loss on the sale. This means the original cost, less accumulated depreciation to the date of sale. TurboTax program will compute the depreciation recapture. In addition, the cost of selling the property will also be factored in computing your gain as well as any improvements/repairs made in the year of sale.

For your 3rd question, the sale of your rental property should be entered in Schedule E as follows:

1. With your return open in TurboTax, search for rentals and then select the Jump to link in the search result.
2. Answer Yes to the question Did you have any income from rentals or royalties?
3. When you get to What are you here to report? select Rental property and fill out the description, address, and owner.
4. When you hit Tell us about your situation this year check the Sold box along with any other boxes that may apply.
5. Continue following the onscreen prompts to enter info about your rental property. Eventually, you'll get to the Review your rental property info screen. You can report the sale in the Expenses/Assets(Depreciation) section, along with any other pertinent info (like income and expense.
6.  

See the link below for more information:

Sales of Rental Property

@Tax2019Pay 

[Tax2019Pay]

Actually TurboTax seems to have a bug in handling selling rental property vs handling other K-1 passive losses/carryforward losses.  If one enters the rental property sale under Rental section, it will take you through Form 4797 and then Schedule D, and the net gain of $8k (rental sale net gain $10k minus stock losses $2k) is included in Line 7 on Form 1040.  This is correct.  However, it will also activate K-1 passive carryforward losses for other partnerships and transfer a negative number, i.e., -10k (to Schedule 1 and then to Line 8 on Form 1040.  This must be wrong as TurboTax tries to offset the rental sale gain twice.

However, if one enters the rental property sale under Business property section, it will only take you through Form 4797 and then Schedule D, and the net gain $8k is included in Line 7 on Form 1040.  It does activate the passive carryforward losses for the rental property (not K-1 passive carryforward losses for other partnerships) and transfer a negative number, say $1k to Schedule 1 and then to Line 8 on Form 1040.  This seems to be right.

Can anyone from TurboTax explain?  Thanks.