I have owned a Master Limited Partnership for seven years. It produced negative K-1 Box Business Income from 2015-2021. In 2022 it produced positive taxable K-1 Box 1 Business Income in five states.
On my federal return this positive 2022 K-1 Business Income appears on the Schedule E as passive income. The MLP lost more money from 2015-2021 the MLP earned in 2022. Therefore, I have unused passive losses from this MLP which are larger than the 2022 passive income. On Schedule E my unused passive loss results in the 2022 Business Income being netted to zero, and on my federal 1040 line 8 “Other Income” I have a zero.
My 2022 K-1 from this MLP has a State Schedule. The State Schedule indicates I have positive Business Income sourced in five states. However, when I use Turbo Tax state software to generate the tax filings for these states it reports zero Partnership Income in each of the five states. For each state Turbo Tax pulls down the zero from the federal 1040 line 8, and then calculates the percentage of that zero which is allocated to the state. Since the starting federal line 8 income is zero, the resulting partnership income in each state is also zero.
I am curious if this is the proper way to report my unused losses for each state? If I follow Turbo Taxes output I will file in each of the five states with 2022 state tax forms that say I received zero partnership income in that state. However, the partnership will be filing partnership level tax forms which say in 2022 I have positive Business Income in the state.
Does anyone know where in Turbo Tax ON THE STATE LEVEL I can claim my unused passive losses from 2015-2021? Turbo Tax enters these unused passive losses on the federal level in federal Schedule E, but I don’t see any way to enter my unused passive losses on a State level in Turbo Tax state software.
Is it proper to claim unused passive losses on the federal level and net my 2022 partnership taxable income to zero on the federal level, and then just report zero 2022 partnership income in each state? This method is accurate, but it fails to explain to each state why I am reporting zero taxable partnership income while the partnership level return is reporting that I do have positive income?
The five states are Illinois, Nebraska, Missouri, Kansas and Oklahoma.
