NOl and QBI

[rgoodric]

A newbie question - is there any relationship at all between the NOL and QBI?  I am a landlord with 10 properties, and I meet the requirements for being a real estate professional (work more than 750 hours a year on rentals in one way or another; the income/expenses are all QBI but what about NOL?  Really no idea here.

[ColeenD3]

I'm not sure what you mean. QBI is based on income. NOL means that you have a greater loss than income. These losses are  usually business losses and add up to more than all of your income, including any W-2 income.

An NOL is not a loss on your business. When the IRS speaks of "business" when they are describing an NOL,  they are not referring to a sole-proprietorship, Loss on your business is taken on the 1040 Line 12. A business loss can contribute to an NOL.

To have an NOL, your loss must generally be caused by deductions from your:

• Trade or business,

• Work as an employee (although not deductible for most taxpayers for 2018 through 2025),

• Casualty and theft losses resulting from a federally declared disaster,

• Moving expenses (although not deductible for most taxpayers for 2018 through 2025), or

• Rental property.

See PUB 536 for calculating an NOL.

[rgoodric]

Thank you, Coleen!

I am still a bit muddled, but gaining clarity.  To add some elements to my question:

I do have 10 rentals but also a W-2 from my day job. The past two years, due to substantial rental renovations, the rentals are running at a loss when all is said and done.  I see that I have the QBI figure in TurboTax (Home and Business) showing up negative for 2019 as well as from 2018. So, no QBI deduction - makes sense.

When the prompt for "2018 Net Operating Loss" appears, nothing is automatically calculated (I did use TurboTax for 2018 as well). 

Is it that my rentals have nothing to do with NOL? (The losses from my rentals in 2018 were already worked into calculating my AGI on 1040 Line 7a - coming from Schedule 1 Line 5 - ie, my Schedule E).

OR, do I now go back to my 2018 taxes to figure this out? 

[JohnB5677]

You will not generate a Net Operating Loss.  This could occur if you had a business or if you filed a Schedule C.  Because your loss is due to rental activity, you will have a Passive Loss Carryforward.

If you had losses of less than $25,000 on rental activity and your AGI is not greater than $100,000, you will be able to take the full loss this year.  Passive loss carryovers only occur in values greater than that.  If a carryover loss is warranted, TurboTax will generate all of the documentation.

[sky fly]

I did file Schedule C, however TurboTax seems to consider it a QBI loss instead of NOL.  Can you please advise?  Thank you!

[ThomasM125]

In your case, your rental income would be QBI income, since you are reporting your activity on a schedule C. So, your losses are not subject to the rental loss restrictions.

If your business losses exceeded other income you reported on your tax return, then that could generate a net operating loss, and that would get carried over to following tax years. The NOL would be your business loss, less your non-business income basically.

[rgoodric]

Thanks John.

Where will that passive loss carry over show up? On which tax Form or worksheet? My losses in 2018 and 2019 were greater than $25,000 and my AGI was less than $100,000, so am I correct to assume that this is on a form that turbotax is keeping?

Relatedly, I used to file with a Schedule C through a sole proprietor LLC, but I found that everything worked out best just running the rentals on Schedule Es. Is there an advantage to the other way?

[DaveF1006]

The advantage of reporting on Schedule E is that there is no Self-Employment tax generated to Schedule E.  Schedule C is used when you provide substantial services [i.e. hotel like services] in conjunction with the property or the rental is part of a trade or business as a real estate dealer." 

[Anonymous]

I have a 1099-C and an NOL from Schedule E. Without the NOL, I would owe no tax as my income is only the 1099-C. If taxable it would be a few hundred dollars. With the NOL, all of the 1099-C is being deducted from my NOL. Is it necessary to document the carryover every year or only in the years that the NOL is used to offset profit on the rental.

[ThomasM125]

A net operating loss (NOL) is carried forward and used to absorb taxable income from any source on your personal tax return form 1040. Any unused loss is carried forward to the next year after it is used to reduce your current year taxable income to zero.

The NOL cannot be used to just offset rental income, it would automatically be applied to all taxable income on the current year tax return.

A passive loss from a rental activity is not a NOL, it does not get subtracted from ordinary income, so it would not appear on a form 1040, so the NOL would not be associated with it. A passive loss from a rental activity would appear on form 8582 which gets filed with your tax return for any year you generate one or have one carried over from the previous year.

Any year you have a NOL carryover from the previous year, you would list it on your tax return. 

[ky1124]

I have a question about this.

I have a negative QBI from my business, and my non-business income does not offset the loss from my QBI. Am I allowed to include my negative income from QBI into my NOL calculation?

[RobertB4444]

No.  The negative QBI is already included in your business loss.

[ntram2004]

I had sch C loss in 2021. It did not give me NOL carryover. Just QBI loss carryover. I have sch C income (insurance brokerage) in 2022. It does not seem I can benefit from QBI loss carryover since it did not offset my 2022 income.  Why could I not have a NOL carryover? 

[ntram2004]

In 2021, I had a negative AGI resulting from having a sch C loss bigger than my other income. Can that negative AGI be NOL carryover and offset the income in 2022? Software did not record NOL, it just gave me QBI loss for 2021. 

[HopeS]

By reviewing your 2021 return you will see whether or not the loss from your Schedule C was all shown on line 8 (Other Income) on page 1 of your Form 1040.

To print your 2021 Tax Return so you can properly view your return you can use the steps below:

1. Sign in to your TurboTax account and open your return by selecting Continue or Pick up where you left off.
2. Select Tax Tools from the left menu, then Print Center (on mobile devices, tap in the upper left corner to expand the menu)
3. Select Print, save, or Preview this year's return, and follow any additional instructions.

@ntram2004