Why does My Turbo Tax do a PAL on my Schedule C when I am actively involved in my business which is Wholesale Trade?

[IsabellaG · Accepted solution]

You may need to go back to your Business Profile, and make sure that you checked that you actively participate in this business. Go to your Business Profile and click Edit.

Scroll down to Special Situations, and if it shows you as not actively participating, click Edit.

Then on the next screen, uncheck the box that says you didn't actively participate.

If that's not what's going on, please respond here with more information.

[Edit 03/22/18 12:42 PM]

[donpaulphillips]

I have Deluxe version and did not find Business Profile with details you show.  Where do I find in Deluxe?

thanks

[IsabellaG]

Sorry, I couldn't tell what version you used! In Deluxe (I'm assuming the Desktop version for Windows) the easiest way to change the selection is to go to Forms mode.

In the upper right hand corner of your screen, click on the Forms icon. Then on the left side of your screen, select the Schedule C shown in Forms in My Return. On the Schedule C, check that you materially participated in the business. I added a screenshot to my answer above showing how this looks on Schedule C.

[donpaulphillips]

Isabella:  I did that and the Line G on My Sch C is checked.  What now?
Thanks

[IsabellaG]

Do you have a loss? When you say that there is a PAL, do you mean that the loss being limited as a passive loss? Any details you can give would be helpful.

[donpaulphillips]

Isabella:  I had a loss in 2106 and 2107 is doing a Passive Loss based on that loss.  I do not want to use the 2016 loss.  Further it is my understanding that the Passive Activity Loss is not applicable for one who is active in the business and the business is a trade as opposed to real Estate.
Thanks

[IsabellaG]

That is correct, a passive loss is NOT for a business in which you are an active participant.

Is there a loss from this wholesale business in 2017? I need to know this.
Is the loss a carryover from 2016? Was THAT from this business, or from another activity. Please let me know.

[donpaulphillips]

The Loss in 2016 was on the business.  From this business.  It was then shown on the 1040 as a business loss, Line 12, from 2016 Sch C and resulted in a 1040 Line 22 Total income loss.  The business is a sole proprietorship.

[IsabellaG]

This sounds more like a Net Operating Loss (NOL) from 2016 than a passive loss. Do you have a form 8582 in your return showing a Passive Loss Carryover? What about with your 2016 return? Where do you see the 2016 loss  on your 2017 return? Is it on line 21? That's for NOL's.

[donpaulphillips]

You are correct as far as I am concerned.  On the 2106 1040, the loss shows on line 22.  On the work up on turbo tax for 2017, there is a form 8552 being generated.  The preliminary 1040 generated by 2017 does not show anything on Line 21.  On Sch C where 2017 should show a net profit on line 31 it shows 0 and shows PAL along side.  Any ideas?

Thanks

[IsabellaG]

The only thing that I can suggest (because I can't see all of the details of your return) is going back to your 2016 return, where the loss generated, and reviewing the forms that went with that return, including checking if the "materially participated" box was checked for that year, and if an 8552 was produced for 2016. If this was a disallowed loss in 2016, it makes no sense to see the loss on line 12 of your 2016 return. It would show a zero. If your 2016 was incorrect, you should amend it. And you should start your 2017 return fresh without transferring this information from 2016, or at least delete the 8552 in your return.

But that's really all I can think of without seeing all the details of your return, which is beyond the scope of this forum. You could consider one of these services if you need this kind of assistance: <a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4139935-how-do-i-get-turbotax-live-or-expert-services">https://ttl...>