First I think the IRS could challenge any write-off in 2023 because the bankruptcy didn't take place until 2024 (even that does not mean an entity is totally worthless which is what the IRS requires). if you do take the loss in 2023 you might have to prove to the IRS that the investment was totally worthless (not worth even a dime) at the end of 2023. i
- Is it necessary to amend my 2021 and 2022 tax returns to capture the passive activity losses if I am going to have to write off the full $60K due to bankruptcy anyway? Also, I cannot finish my carryovers anyway since I will not have the final two years of K-1s. NO the losses reported are what they are. The question you'll have to follow up on is whether you deducted those passive losses when you shouldn't have. SEE BELOW
- How do I handle my 2023 tax return if no K-1 received? I do not have the numbers to continue calculating my basis nor enter the passive carryover losses. I also cannot check the box that the company dissolved as it did NOT dissolve in 2023. Do I just file my tax return without a K-1?
if you are going to take the write-off in 2023, you would enter nothing for boxes 1-20. You would indicate final k-1 and that you disposed of your entire interest. see below about entering the PAL c/o. if you are going to wait until 2024 just leave the k-1 boxes 1-20 blank but do enter the PAL c/o for 2023
- How do I enter the investment loss on my upcoming 2024 return with no “Final K-1”? I am walking through the 2023 wizard steps just to see what to expect next year. I see there is a box that should say “This partnership ended in 2024.” Once I check that box, it looks like I then check “Disposition was not via a sale” on the next screen. Then when proceed to next screen it asks for the purchase date and sale date. There was no sale per my previous response, so I suppose I enter the bankruptcy filing date? Then, when I keep going through the wizard it starts asking me K-1 questions – Box 1 Ordinary Loss for the year, then “what boxes are checked on your K-1”, etc. There is never a spot to say I didn’t get a K-1 and I will not be getting one. Surely there is an alternative way to file this investment loss and be done with it
look at the 2023 form 8582 to see if it shows a passive loss carryover. It would appear on line 1c or 2c
if these are blank you'll need to go back to the same form for each year. it is possible some or all of the losses were allowed look at part VIII column (c) for the allowed amount. Any carryforward would be in column (b). Turbotax should have carried forward that loss to the subsequent year where the calculations would be repeated to determine allowed and carryforward loss. If there is no 8582 for a year this would seem to indicate the loss was not treated as passive. if that's the case then you need to amend those returns.
With the Turbotax k-1 for the year you're going to take the write-off there's a link to a disposal worksheet. sales price would be 0. cost or basis would be your investment - less those losses less any distributions received for those years. Without proof that you are entitled to an ordinary loss the remaining basis will be a long-term capital loss. also if you took those losses when you shouldn't and are amending prior returns to eliminate those losses as you go through the 2023 k-1 questions there will be a place to enter the passive loss c/o which will be allowed in the year you declare the write-off due to total disposal.
