Is there a reason why turbotax would exclude business losses from schedule E (reported on K1) when calculating the OH BUS IT form?

[Rick19744]

You will need to expand on your question.  Not sure what you are asking "when calculating OH Bus IT"

Are you working on personal return?  Business return?  Just need additional details.

[Carl]

See if this helps

 Passive loses (such as rental) can only offset passive gains. Once those passive losses get your taxable passive gains to zero, that's it. Any excess loss is carried forward to the next year.  So it is "very" common for rental property have ever increasing passive losses that are carried forward with each passing year.  Those passive losses are not "realized" until the year you sell or otherwise dispose of the rental property. So when you sell the rental property your losses are taken in the year you sell as follows:

 - First, the passive losses are deducted from the passive income.

 - Any remaining losses are then deducted from your taxable gain on the sale of the rental property.

 - If there are any remaining losses, then they are deducted from other ordinary income (such as W-2 earned income) up to a maximum allowed limit of $3,000 (or less, depending on the overall AGI).

Then if you "still" have remaining losses to deduct, they are carried over to the next year where they continue to be deducted from other ordinary income up to a maximum of $3,000. The carry over continues year to year until all losses have been claimed and realized.

[tagteam]

Note that net losses from sales of rental real estate are not subject to capital loss limitations.

In fact, losses from sales of rental real estate can be used to offset other income and have the potential to generate an NOL (net operating loss).

[Hal_Al · Accepted solution]

I suspect that you have heard from the Ohio dept. of Taxation (ODT) that you failed to deduct your rental losses from the business income that you claimed Ohio’s Business Income Deduction (BID) for (Form IT BUS).

TurboTax  (TT) does not know or assume which of your business income, or losses, from federal schedules C, D, and E (or other forms) qualify for BID.  You have to do that manually. In the TT Ohio interview, you will be asked to enter your qualifying income (and losses) form the federal schedules that qualify..  

This has been frequent thing with ODT.  The common example: you must reduce the business profit shown on Schedule C by the rental losses on Sch E (if your rental qualifies as business income, most do). It is not optional.  

If you got a bill from ODT, it's probably accurate and you should  just pay it

[BrotherRick]

On my personal return, I had a loss on my schedule E from a K1/LLC. 

The state of Ohio has a form "IT BUS" that, according to the OH tax website, "records business income reported on IRS schedules B, C, D, E and F as well as any other items of business income and gain separately stated on the federal Schedule K-1, on the federal 4797, and miscellaneous federal income tax adjustments, if any."

The loss I reported on my federal return (from my LLC) was NOT included in my OH return.  Why did this happen?

[BrotherRick]

I agree with your suggestion.  If I owe the money, I should pay it.

The problem  for me is that I apparently made the same mistake in 2018.  Should I file an amended return or wait to see if I get another notice?  

[Hal_Al]

Q. The loss I reported on my federal return (from my LLC) was NOT included in my OH return.  Why did this happen?

A. It was included on your Ohio return for purposes of calculating your Ohio income tax base (line 5 of form IT1040). TurboTax (TT) is not capable of classifying each item of income (or loss) as qualifying or non-qualifying fot the Ohio business Income deduction (BID). You have to know what qualifies and manually enter the qualifying amount(s) for the Ohio business Income deduction (BID).  The BID interview asks you to enter these amounts

Q. Should I file an amended 2018 return or wait to see if I get another notice? 

A. Technically, you should amend, since you know your return is wrong.  Even if you waited, it's pretty certain ODT will catch it. It's on their radar and you'll pay more interest.  But, the simplicity of just waiting for the bill to pay may justify the extra interest