Disallowed Section 179

[brscott]

My carryover problem appears to be a software glitch.  I have a large carryover from a passive investment in a partnership and no earned income.  Form 4562 (D&A) recognizes that and shows the disallowed deduction in line 13, as continued carryover to 2021.  Section D1 (QBI) details the correct income and subsequently generates the correct QBI on the 1040.  However, Sch E shows income for the partnership that has been reduced by the amount of the disallowed deduction.   This lowered income is carried forward to the 1040.  Has anyone figured out how to correct this situation?

[Rick19744]

There are two separate issues here:

• The QBI calculation
• The passive activity calculation; and corresponding Section 179 deduction
• Your facts are limited, but you indicate a large passive activity carryover.  The facts don't reflect the tax year(s) that generated the large passive activity carryover.
• For QBI purposes, suspended passive activity losses incurred before January 1, 2018 are not taken into account for QBI purposes.  This essentially requires tracking suspended passive activity losses separately for QBI and then the normal passive activity rules for purposes of Schedule E.
• Section 179 requires income in order to take the deduction, or the Section 179 deduction is carried over.  
• So based on the limited facts, it appears TT may be computing both of these correctly.  Can't verify it, but could make sense.  Depending on when the passive activity losses were incurred, you could have income when computing QBI, but still be using passive activity losses incurred before 1/1/2018 for Sch E purposes; generating no income.  Hence no Section 179 deduction allowed in the current year.